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ELECTKIC  RAILWAY 
ACCOUl^Tn^G- 


THE  MONTHLY  REPORT,    THE   ACCOUNTINa 
DEPARTMENT,  AND  THE  ACCOUNTANT 


BY 

W.  B.  BROCKWAY 

General  Auditor  Nashville  (Tenn.)  Railway  &  Light  Company 
Ex-Secketary  Street  Railway  Accountants'  Association  of  America 


NEW    YORK 

McGRAW    PUBLISHING    COMPANY 

1906 


ttt 


f)irC         '■ 


Copyrighted,  1906 

BY 

McGraw  Publishing  CoMPAifT 
New  Yoke 


EXPLANATION. 


As  a  beginning,  it  seems  best  to  explain  the  result  desired  to 
be  reached  by  this  little  book  and  the  conditions  which  have 
brought  it  about. 

The  subject  of  accounting  is  very  large;  it  is  the  beginning 
and  the  result  of  all  effort  wherein  money  or  its  equivalent 
forms  a  part.  It  follows,  therefore,  that  such  a  comprehen- 
sive subject  must  be  treated  in  its  different  lines  of  action,  that 
is,  specialized. 

Many  works  have  considered  the  accoimting  of  street  (or 
more  properly  now,  electric),  railways,  but  always  from  a  stand- 
point outside  the  actual  operation  of  such  work.  It  is  hoped 
here  to  show  the  subject  in  a  somewhat  more  intimate  light. 

The  subject,  even  though  limited  to  electric  railways,  is  so 
large  and  all  parts  of  it  are  so  important  to  the  result,  that  it 
has  been  difficult  to  fix  limits  within  which  the  discussion 
could  be  kept  and  still  be  broad  enough  to  make,  a  discussion 
anywhere  near  complete. 

It  is  also  well  to  explain  that  the  author  has  not  intended  to 
convey  the  impression  that  the  subject  is  treated  in  all  its 
bearings.  Each  subject  treated  is  capable  of  much  enlarge- 
ment and  elucidation,  and  it  could  properly  be  carried  to 
greater  length.  But  an  effort  has  been  made  to  keep  within 
well  defined  bounds  and  yet  provide  a  basis  for  a  better 
understanding  of  a  part  of  electric  railway  accounting.  His 
work  is  simply  a  brief  consideration  of  the  text  provided  by 
the  titlte. 


165054 


^ 


CONTENTS. 


Chap.  Page. 

Explanation iii 

I.   What  a  Report  Should  Be 1 

II.  A  Suggested  Form  op  Report 7 

III.  The  Relation  of  Operating  Expenses  to  Earnings    .   .  16 

IV.  Some  Other  Units  of  Comparison       '. 22 

V.   Curves  as  a  Means  of  Expression 28 

VI.   Statistical  Information      39 

VII.  What  Standardization  of  Accounts  Mea^s 44 

VIII.    The  Balance  Sheet 49 

IX,   Accrued  and  Suspended  Accounts 54 

X.   Expert  Examinations 59 

XI.   Accounting    Department    not    a  Revenue     Producing 

Department 64 

XII.   Some  Qualifications  of  a  Railway  Accountant   ....  69 

XIII.  The  Accounting  Office 74 

XIV.  Taking  Things  for  Granted 79 


ELECTRIC    RAILWAY   ACCOUNTING. 


CHAPTER    I. 
WHAT  A  REPORT  SHOULD  BE. 

Speaking  broadly,  and  by  way  of  illustration,  tli3  monthly 
report  of  an  electric  railway  may  be  likened  to  a  guide-post 
pointing  the  way,  and  like  a  touring  club  road-sign  it  gives 
warning  of  what  is  to  come. 

The  term  report  is  another  way  of  conveying  to  the  mind 
"a  statement  or  realization  of  facts  given  as  the  result  of 
inquiry  by  persons  authorized  to  examine,"  that  is,  a  financial 
report  transposes  things  that  have  transpired  and  describes 
them  in  terms  of  figures.  The  monthly  report  of  an  electric 
railway  covers  such  a  diverse  activity  of  a  large  number  of 
persons  that  it  is  impossible  to  give  a  proper  explanation  of 
the  transactions  of  the  coippany  except  by  the  use  of  figures. 

It  should  be  borne  in  mind  that  the  management  can  render 
no  decision  nor  make  any  move  without  in  some  way  affecting 
either  the  income  or  the  expenses,  or  both,  of  the  company. 
Therefore,  every  effort  put  forward  to  gain  income,  every  car 
put  on  or  taken  off,  and  practically  every  move  of  whatever 
nature  which  seems  to  the  management  to  be  proper,  must  of 
necessity  be  reflected  in  the  monthly  report. 

This  being  accepted  as  a  fact,  it  becomes  of  prime  importance 
that  the  actions  and  accomplishments  of  the  company  shall 
be  shown  in  the  report  with  exceeding  care  and  accuracy, 
that  those  persons  who  are  responsible,  on  account  of  the  posi- 
tion they  occupy,  for  the  policy  which  has  guided  the  activity 
displayed  during  the  period  covered  by  the  report,  shall  thor- 

1 


2  ELECTRIC  RAILWAY  ACCOUNTING. 

oughly  understand  what  they  have  accompHshed.  The  report 
accurately  made  and  carefully  studied  will  always  disclose 
symptoms  of  good  policy  or  poor  judgment,  and  -it  is  for  this 
reason  that  the  report  is  likened  to  a  guide  post  pointing  the 
way.  A  monthly  report,  coming  as  it  does  periodically  through 
the  year,  provides  a  basis  for  frequent  changes  in  policy  and 
makes  it  more  probable  that  the  company  will  be  better  man- 
aged than  would  be  possible  if  the  reports  were  for  a  longer 
period.     • 

In  its  composition,  the  monthly  report  should  contain  in 
detail  the  income,  the  expenses,  the  accounting  operating 
statistics,  and  the  financial  condition.  Nothing  should  be 
omitted  from  it  that  can  in  any  way  be  of  value  to  a  proper 
understanding  of  the  situation.  With  the  above  as  a  basis, 
the  amount  of  work  necessary  to  obtain  this  proper  detail 
should  be  of  minor  importance,  for  the  value  of  the  informa- 
tion contained  in  the  report  permits  a  grasp  of  the  situation 
so  thorough  that  it  cannot  be  overestimated. 

It  is  coming  to  be  realized  more  and  more,  that  any  policy 
which  restricts  the  accounting  department  in  help  and  expend- 
iture is  a  mistake,  because  the  information  it  can  furnish  under 
intelligent  administration  is  as  necessary  to  the  modern  opera- 
tion of  an  electric  railway  as  the  knowledge  of  symptoms  are 
to  a  physician  in  the  diagnosis  and  treatment  of  human  ills. 

At  this  point  it  seems  best  to  explain  that  there  should  be 
two  forms  of  monthly  report,  one  giving  the  totals  of  income, 
expenses,  fixed  charges,  and  surplus,  which  can  be  circulated 
with  as  much  liberality  as  the  policy  of  the  company  permits. 
But  in  addition  to  this,  there  should  be  compiled  a  complete 
detailed  statistical  report  which  should  be  for  the  use  of  the 
management  only,  as  it  should  contain  the  most  confidential 
statement  of  the  operation  of  the  company.  It  is  this  latter 
report  that  will  be  discussed  in  these  pages. 

From  the  standpoint  of  disclosing  symptoms  and  permitting 
the  management  to  change  its  policy  along  the  lines  pointed 


REPORT.  3 

out  by  tlie  results  shown,  it  becomes  extremely  important  that 
the  monthly  report  should  be  issued  promptly  as  well  as 
intelligently. 

The  practice  pursued  by  the  steam  railroads  of  not  issuing 
nor  expecting  the  monthly  report  of  a  given  month  until  at 
least  the  25th  of  the  succeeding  month  should  be  discouraged 
among  electric  railroads,  and  by  carefully  planning  the  work 
of  the  accounting  department,  there  seems  to  be  no  good 
reason  why  the  report  should  not  be  issued  within  the  first 
ten  days  of  the  succeeding  month.  Even  when  the  electric 
railroad  is  combined  with  an  electric  lighting  company,  it  is 
still  possible  that  the  report  of  the  combined  property  can  be 
issued  by  this  date. 

For  the  intelligent  understanding  of  a  report,  the  first  page 
should  contain  in  few  terms  the  summary  of  the  month's 
operation,  so  that  the  official  who  is  interested  only  in  the 
results  may  obtain  these  salient  facts  quickly  without  search- 
ing through  the  whole  report  for  them.  This  first  page  should 
contain  the  results  shown  by  all  the  subsequent  pages.  In  other 
words,  the  whole  story  in  totals  should  be  gathered  together 
on  one  page.  Then,  for  the  official  who  desired  to  go  further 
into  causes  and  effects,  the  pages  following  should  contain 
the  income  account  in  detail,  the  operating  expenses  in  detail, 
the  accounting  statistics,  and  finally  the  balance  sheet.  In 
another  chapter  will  be  foimd  a  suggested  form  of  report 
which  will  illustrate  this  plan  of  the  summary  first  and  the 
detail  after. 

It  should  not  be  understood  that  the  form  of  monthly  re- 
port suggested  is  the  only  information  required  for  a  proper 
report  of  a  company's  accomplishments.  There  is  as  much 
more  necessary  from  the  operating  department.  The  tabu- 
lating of  the  work  of  the  shops,  the  line,  the  track,  the  trans- 
portation, the  power,  the  claim  and  other  departments  is  as 
necessary  to  the  manager,  but  the  subject  here  considered  is 
restricted  to  the  accounting.     That  is,  what  it  has  cost  to 


4  ELECTRIC  RAILWAY  ACCOUNTING. 

move  the  several  and  diverse  departments  and  what  they 
have  collectively  brought  in  for  the  common  good  —  the 
stockholders.  But  by  transposing  the  cost  figures  into  the 
activities  that  caused  the  cost,  the  management  is  enabled  to 
get  an  approximate  idea  of  the  work  done  and  the  method 
of  doing  it. 

The  monthly  report  differs  from  the  annual  report  in  many 
essential  ways.  The  two  have  everything  in  common,  but  for 
the  purposes  of  the  use  to  which  they  are  put,  they  must  be 
somewhat  differently  arranged,  and  each  should  contain  infor- 
mation particular  to  itself.  When  properly  made  and  cover- 
ing in  full  detail  everything  relating  to  its  month,  the 
monthly  report  permits  changes  or  corroborates  matters  so 
that  when  the  annual  report  is  reached,  that  report  only 
summarizes  in  grand  totals  the  influences  of  the  monthly 
reports  that  have  preceded  it. 

The  annual  report  of  a  company  is,  on  accoimt  of  its  semi- 
public  character,  the  most  important  document  issued  by  the 
company.  While  the  monthly  report  occupies  the  position 
of  a  guide-post  pointing  the  way  for  future  management,  and 
at  the  same  time  a  story  of  the  accomplishments  of  the  com- 
pany for  short  periods,  the  annual  report  becomes  an  historical 
document  of  an  entire  administration.  And  as  the  officers 
are  elected  annually,  the  annual  report  thus  becomes  an  ex- 
pression of  the  administration,  showing  its  ability  or  its  weak- 
nesses. 

The  annual  report  is  referred  to  as  semi-public  for  the  reason 
that  by  its  presentation  to  the  stockholders,  it  is  placed  in  the 
hands  of  the  public  for  such  interpretation  as  the  public  may 
give  it. 

The  customary  submission  of  a  report  by  the  president  to 
the  board  of  directors,  and  by  the  directors  to  the  stock- 
holders, may,  in  a  measure,  be  considered  a  defense  or  explan- 
ation of  the  actions  of  the  administration  which  is  about  to 
retire  or  be  reelected,  as  the  case  may  be.      The  action  of  the 


REPORT.  5 

stockholders  in  reelecting  or  not  is  frequently  governed  by 
the  report  made  by  the  administration  whose  term  is  about  to 
expire. 

Thus,  the  annual  report  takes  a  different  place  from  that 
occupied  by  the  monthly  report,  and  as  it  is  issued  annu- 
ally it  should  contain  much  information  not  contained  in  the 
monthly  report.  On  the  other  hand,  on  account  of  its  semi- 
public  character,  it  may  properly  not  contain  all  of  the  in- 
formation considered  as  of  essential  importance  in  an  operat- 
ing monthly  report. 

It  is  not  intended  to  convey  the  impression  that  secrecy 
should  be  practiced,  but  that  by  the  different  use  to  which  it 
is  put  the  annual  report  need  not  necessarily  be  so  detailed 
in  its  composition  and  yet  fulfill  its  purpose.  For  instance, 
the  information  relating  to  the  organization,  the  track  mileage, 
the  equipment,  the  changes  in  the  funded  and  other  debt,  and 
the  assets,  and  the  information  relating  to  the  physical  con- 
dition of  the  property,  should  all  be  treated  and  compared 
with  the  previous  year,  and  the  changes  in  a  year's  work  should 
be  pointed  out  and  explained.  All  this,  on  account  of  its 
monthly  repetition,  may  be  considered  unnecessary  for  a 
monthly  report,  although  of  importance  in  an  annual  report. 
And  for  the  reasons  already  explained,  the  extended  details  of 
income  and  operating  may  safely  be  omitted  from  the  annual 
report  and  the  results  given  in  totals. 

Accompanying  the  annual  report  should  be  a  certificate 
from  some  responsible  public  auditor  explaining  how  far  and 
wherein  the  accounts  are  correct.  An  additional  discussion 
of  the  value  and  the  scope  of  this  certificate  will  be  found  in 
another  chapter. 

There  are  reasons  why  the  fiscal  year  of  a  company  which 
governs  the  date  of  the  annual  report  should  date  from  the 
day  of  organization,  but  it  seems  to  the  writer  there  are  more 
reasons  why  the  date  selected  for  the  fiscal  year  should  be  the 
calendar  year.     This  does  not  lose  sight  of  the  fiscal  year  of 


b  ELECTRIC  RAILWAY  ACCOUNTING. 

the  United  States  Government  which  ends  at  June  30,  but  it 
makes  clearer  in  the  mind  of  the  pubHc  that  a  report  spoken 
of  as  a  certain  year,  contains  the  calendar  year  and  not  part 
of  one  and  part  of  another  calendar  year. 

The  annual  report  should  disclose  the  condition  of  the  com- 
pany in  a  very  true  and  accurate  manner.  The  ledger  accounts 
should  be  thoroughly  cleansed,  before  this  report  is  issued,  of 
all  the  fungus  and  extraordinary  matters  that  are  continually 
creeping  into  the  accoimts.  Therefore,  this  report  should  dis- 
close the  results  obtained  after  such  adjustments. 


CHAPTER  II. 
A  SUGGESTED  FORM  OF  MONTHLY  REPORT. 

In  composition  the  report  should  be  planned  to  be  easily 
handled  and  logically  arranged.  For  instance,  the  idea  of 
having  the  form  printed  on  one  large  sheet  of  paper,  with  the 
information  placed  upon  one  or  both  sides  and  each  table 
fitted  in  wherever  it  will  go  regardless  of  context,  is  a  form 
that  should  be  abandoned.  In  the  first  place  it  is  confusing, 
and  when  an  attempt  is  made  to  give  the  information  in  proper 
detail,  the  figures  must  of  necessity  be  so  small  that  they  add 
to  the  confusion. 

Accurate  information,  like  everything  else,  moves  along  the 
line  of  least  resistance,  so  the  figures  should  be  so  arranged  that 
the  greatest  information  may  be  obtained  with  the  greatest 
ease,  that  is,  the  least  effort.  Experience  to  the  present  time 
has  shown  that  a  monthly  report  in  pamphlet  form,  with  pages 
about  12  X  15  inches  in  size  and  Containing  as  many  pages  as 
necessary,  is  the  easiest  to  handle,  and  permits  the  tables  to 
be  wide  enough  and  long  enough  to  allow  figures  that  are  of 
readable  size. 

As  a  suggestion  for  such  a  report,  the  following  is  submitted: 
The  paper  used  should  be  of  good  quality  linen,  either  white 
or  buff,  with  a  firm  finish.  This  paper  will  stand  hard  usage 
and  retain  its  condition.  The  columns  should  be  ruled  in 
blue,  which  w^ill  be  found  less  hard  on  the  eyes,  and  the  type 
matter  should  be  printed  from  type  having  clean,  strong  lines. 
Very  few  printers  use  judgment  in  the  selection  of  type  and 
paper,  as  they  frequently  adopt  whatever  type  face  is  most 
convenient,  and  paper  within  the  price  quoted,  so  that  care 
must  be  used  that  specific  directions  are  given  to  them.     It  is 

7 


8  ELECTRIC  RAILWAY  ACCOUNTING. 

often  thought,  or  rather  from  the  looks  of  many  reports  it 
seems  to  be  thought,  that  anything  in  the  shape  of  composi- 
tion will  do  if  the  figures  are  there.  But  this  isinot  the  case. 
Therefore,  these  few  general  suggestions  are  given  here  in  the 
belief  that  if  followed  a  more  logical  report  will  be  obtained. 

The  form  shown  herein  is  not  intended  by  any  means  to  be 
the  last  word  that  can  be  said  about  the  composition  of  a 
report  of  this  character.  It  has  been  submitted  for  suggestive 
purposes  only,  and  as  such  it  is  believed  it  will  be  of  value. 

Attention  is  also  drawn  to  the  entire  absence  of  power  house 
and  other  operating  statistics.  These  have  been  omitted  for 
the  reason  that  this  is  intended  to  be  an  accounting  sugges- 
tion only.  In  another  place  it  is  advised  that  because  of  the 
great  quantity  of  valuable  information  the  operating  depart- 
ment should  and  is  in  a  position  to  furnish,  it  would  be  more 
valuable  if  these  data  should  be  comprised  in  a  separate 
report.  It  is  quite  possible,  however,  to  have  these  data 
printed  on  pages  of  identical  size  with  the  accounting  report 
and  included  in  the  same  cover,  thereby  making  a  complete 
report  of  great  value. 

While  the  suggested  form  contains  the  elements  from  which 
an  annual  report  is  obtained,  as  evidenced  by  the  ''year  to 
date"  sections,  it  differs  materially  from  such  a  report  as- 
explained  elsewhere. 

In  the  choice  of  paper,  the  color  of  ruling,  and  other  respects, 
the  report  is  constructed  for  use  on  a  duplicating  machine, 
and  after  the  process  of  duplication  the  pages  are  designed  to 
be  gathered  together  and  bound.  This  brings  up  the  question 
of  a  choice  of  duplicating  medium.  The  writer  wishes  to  beg 
this  question,  as  there  are  so  many  successful  methods,  but  to 
call  attention  to  one  way  that  should  not  be  used,  which  is  by 
carbon  transfer  ui  a  typewriting  machine.  The  reason  for 
objection  to  this  process  is  that  by  the  use  of  a  paper  thick 
enough  to  permit  printing  upon  both  sides,  the  number  o 
legible  copies  that  can  be  made  at  a  time  is  three,  and  as  the 


FORM  OF  REPORT. 


9 


average  company  requires  more  than  three  copies  the  report  must 
be  again  printed,  with  the  attendant  Habihty  to  error. 
The  suggested  report  follows  : 


CITY    STREET    RAILWAY    COMPANY 


MONTH  OF 

190 

Increase  or  Decrease 
FROM  Last  Year 

Gross  Eaknings 

Operating  Expenses 

Net  Earnings 

Other  Income 

Gross  Income.  Less  Operati.vg 
Expenses 

Deductions  from  Income 

Net  Income  (Surplus) 

Per  Cent,  of  Operating  Ex- 
penses to  Gross  Earnings 

Per  Cent.  Net  Income  to 
Preferred  Stock 

Per  Cent.  Balance  Net  Income 
TO  Common  Stock 

Railway  Earnings  per 
Car  Mile 

Railway  Earnings  per 
Car  Hour 

Red  in  this  report  signifies  decrease. 
CORRECT; 


Vice-President  &.  General  Manager 


190 


10 


ELECTRIC   RAILWAY  ACCOUNTING. 


2 

FOR  THE  MONTH  OF 

RAILWAY  DEPARTMENT 

' 

INCOME 

100_ 

P.C.Gr. 

Earning 

Per 

Car  Mile 

Per 
CarH 

190^ 

P.C.Gr. 
Earning 

Per 
Car  Mil< 

Per 
Car  Hr. 

Pass 

V.S 

Cha 
Adv 

lenger  Earnings                                            Line 

Mail 

tared  Cars 
ertising  In  Cars 

GROSS  EARNINGS  FROM  OPERATION 

TOTAL  OPERATING  EXPENSES  (Page  4) 

NET-EARNINGS  FROM  OPERATION 

Income  from  other  sodrces 
Rent-Und  and  Buildings 

TOTXX  LncomE  feom  Other  Sodboes 

GROSS  INCOME,  I*3S  Operating  llxpenses 

DEDtCTIO.VS  FROM  INCOME— 

Interest  oa  Funded  Debt 

"        "  Current  UabflU'WeS 
Taxes- 

TOTAL  Deductions  from  Income 

NET  INCOME  (Surplus) 

CAPITAL  STOCK 

DESCRIPTION 

Total  Par  Value 
Authorized 

Total  Par  Vain 
Issued 

e 

Diviiiexds  This  Year         J 

Date 

Rate 

Amount           I 

Preferred  Stock                                     Par  Value  $100 

Common  Stock                                      Par  Value  $100 

Total 

FUNDED  DEBT 

DESCRIPTION 

Dated 

Years 

Amount 
Authorized 

Amount 
Outstanding 

Interest                               I 

Rate 

Payable 

Afcrue.l  This  Y  ear    | 

FORM  OF  REPORT, 


11 


STATEMENT                                                                                         p^r  the           months 

FROM  JAN.  1st. 

Increase  or 
Decrease 

Per 

Cent 

Total  From 
Jan.  1. 100 

P.C.Gr. 

Earn'gs 

Per         Per 

Car  Mile 'car  Hr 

Total  From 
Jan.  1, 190 

P.C.Gr.      Per 

Earn-gsCar  Mile 

Per 
CarUr 

Increase  or 
Decrease 

Per 
Cent 

CURRENT  LIABILITIES 

TO  WHOM  ISSUED 

Amount 

Dated 

Period 

Rate 

Interest  Accrued 

■ 

1 

Total 



12 


ELECTRIC  RAILWAY  ACCOUNTING. 


4 

FOR  THE  MONTH  OF 

RAILWAY  DEPARTMENT. 

OPERATING 

1 

2 
3 

4 

5 
6 

7 
8 
9 

10 
11 
12 
13 
U 

16 
17 
18 
19 
20 
21 
22 
23 
24 

25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
36 

OPERATING  ACCOUNTS. 

IW) 

P.C.Gr. 

Earning, 

Per 

Car  Mile 

Per 
Car  Hr. 

190 

P.C.Gr. 
Earnings 

Per 
Car  Mile 

Per 
Car  Hr. 

Maintenance  of  Track  and  Roadway 
"  Electric  Line 
"  BuUdlngs  and  Fixtures 

Totai^Maintesance  Wat  A  Stbdctubes 

Maintenance  of  Steam  Plant 

"  Electric  Plant 

"  Cars 
"            "  Elec.  Equipment  of  Cars 

"  Miscellaneoug  Equipm't 
Miscellaneous  Shop  Expenses 

ToTAt-MAINTENANCE  EQUIPMENT 

TOTAL  MAINTENANCE 

Power  Plant  Wages 

Fuel  for  Power 

Water  for  Power 

Lubricants  and  Waste  for  Power  Plant 

MUcelL  Supplies  &  Exp.  of  Power  Plant 

TOTAi— Operation  or  Power  Pi.ant 

Superintendence  of  Transportation 

Wages  of  Conductors 
"     "  Motormen 

>'     "  Other  Car  Service  Employes 
"     "  Car  House  Employes 

Car  Service  Supplies 

MisceUancous  Car  Service  Expenses 

Cleaning  and  Sanding  Track 

Removal  of  Snow  and  Ice 

Total— Operatiox  of  Cars 

TOTAL  TRANSPORTATION 

Salaries  of  General  Officers 

Salaries  of  Clerks 

Printing  and  Stationery 

Miscellaneous  Office  Expenses 

Store  Room  Expenses 

Stoble  Expanses 

Advertising  and  Attractions 

Miscellaneous  General  Expenses 

Damages 

Legal  Expenses— Damages 

Miscellaneous  Legal  Expenses 

Rent  of  Land  &  Buildings 

Insurance 

TOTAL  GENERAL 

TOT.U.  OPERATING  EXPENSES. 

FORM  OF  REPORT, 


13 


5 

EXPENSES 

FOR  THE                MONTHS 
FROM  JANUARY  1ST. 

incr,a«„r 
DecreaM 

Per  Cent. 

Toul  From 
Jan.  1.  190_ 

P.C.Gr. 
Earnings 

Per 
Car  Mile 

Per 
Car  Hr. 

Total  From 
Jan.  1,  190  _ 

P.C.Gr. 

Earning* 

Per 
Car  Mil. 

Per 
Car  Hr. 

Increa«or 
Decreaae 

•Per  Cent. 

1 

u 


ELECTRIC  RAILWAY  ACCOUNTING. 


6                                                                     CAR  MILEAGE 

LINES 

This  Month 
This  Year. 

"nis  Month 
Last  Year 

Difference 

% 

This  Year 
to  Date 

Last  Year 
to  Date 

Difference 

% 

Total 

CAR  HOURS 

LINES 

This  Month 
This  Year 

This  Month 
Last  Year 

Difference 

% 

This  Year 
to  Date 

Last  Year 
to  Date 

Difference 

% 

Total 

PASSENGERS  CARRIED 

\tis^Y?a*r^ 

'^sr.'^^ 

Increase  o 
Decrease 

% 

This  Year 
to  Date 

Last  Year 
to  Date 

Increase  or 
Decrease 

% 

Cash  Fares 

Tickets  of  all  kinds 

Transfers 

Passes 

1 
i 

Total 

1 

DAMAGES 

This  Month 
This  Year 

This  Month 
Last  Year 

Increase  or 
Decrease 

Per  Cent 

This  Year 
to  Date 

Last  Year 
to  Date 

Increase  or 
Decrease 

Per  Cent 

In  Ledger  Account 
last  Month 

Paid  this  Month 

Total 

ii  Expenses  this 
Month 

In  Ledger  Account 
thir  Month 

FORM  OF  REPORT. 


15 


BALANCE  SHEET.  LAST  DAY  OF 


LEDGER  ACCOUNTS 


Liabilities; 


CHAPTER  III. 
THE  RELATION  OF  OPERATING  EXPENSES  TO  EARNINGS. 

When  a  company  compares  its  expenses  to  its  earnings,  it 
also  obtains  an  approximate  understanding  of  the  capacity  of 
the  men  that  have  been  placed  in  active  operation  of  that 
property.  This  statement,  like  all  other  statements  which 
are  made  in  general  terms,  has  its  exceptions,  as  the  physical 
condition  and  many  other  conditions  must  be  taken  into 
consideration.  The  physical  condition  always  plays  a  very 
important  part  in  the  percentage  of  expenses  to  earnings. 
The  policy  of  the  company,  especially  in  the  general  expense 
items,  may  also  frequently  offset  the  most  careful  and  eco- 
nomical handling  of  the  transportation  and  maintenance  part 
of  the  operation.  Therefore,  it  cannot  be  considered  sufficient 
when  a  property  is  cited  as  operating  for  50  per  cent,  or  less 
of  its  gross  earnings;  other  explanations  must  be  made  before 
a  true  understanding  can  be  gained  of  what  the  property 
actually  has  done. 

The  location  of  the  Imes  has  an  important  bearing  upon 
economical  operation.  This  is  especially  true  after  a  consoli- 
dation of  companies  has  occurred.  It  is  a  very  exceptional 
case  with  two  or  more  companies  in  a  city  if  some  of  the  lines 
of  the  different  companies  do  not  parallel  each  other.  When 
they  do  lead  into  the  same  territory,  with  business  enough  for 
only  one,  it  necessarily  means  that  neither  line,  after  consoli- 
dation, can  be  operated  at  its  best  efficiency  unless  the  other 
line  is  removed  or  modified. 

There  is  a  city,  not  far  from  New  York,  which  contains  at 
this  time,  two  very  active  companies.  In  the  course  of 
their  rivalry,  these  companies  have  so  entered  each  other's 

16 


RELATION  OF  EXPENSES  TO  EARNINGS.  17 

territory  that  the  city  has  two  complete  services  in  all  districts 
with  each  maintaining  a  service  that  would  suffice  for  the 
business  of  both.  Assuming  that  each  gets  half  the  business, 
it  follows  that  the  per  cent,  of  expense  to  earnings  is  very  high 
with  each  company,  as  each  has  expense  enough  for  all  the 
business  and  gets  but  half  of  it. 

The  high  per  cent,  of  operating  cost  cannot,  in  this  case,  be 
wholly  the  fault  of  the  physical  condition,  but  comes  about 
through  competition,  and  is  an  example  of  why  the  operating 
per  cent,  standing  by  itself,  is  not  a  unit  of  comparison  to  be 
wholly  depended  upon  for  all  purposes.  It  is  also  quite  pos- 
sible for  one  company  to  operate  for  50  per  cent,  of  its  earnings 
and  still  not  pay  dividends  to  its  stockholders.  If  the  bonded 
indebtedness  is  large,  the  fixed  interest  upon  it  may  absorb  all 
that  is  gained  by  low  operating  cost.  Another  company  oper- 
ating for  70  per  cent,  may,  through  larger  gross  earnings  or 
low  capitalization,  pay  10  per  cent,  or  more  to  its  stockholders. 

Examples  of  both  may  be  found  in  the  published  reports  of 
electric  railway  companies. 

It  seems  necessary  to  point  out  here  that  all  items  entering 
into  the  earnings  of  a  company  should  be  for  actual  money 
received  or  to  be  received.  A  company  should  not  indulge 
the  habit  of  including  in  earnings  items  that  are  offset  in  other 
accounts.  For  instance,  a  company  during  the  period  of  re- 
construction when  charging  construction  account  for  the  cur- 
rent consumed  by  the  construction  cars,  or  for  the  rental  of 
construction  or  work  cars,  should  not  credit  to  earnings  the 
amount  charged  to  construction  for  the  purposes  above  out- 
lined. The  amount  charged  to  construction  will  be  more 
accurately  handled  by  crediting  operating  expenses.  The 
earnings  being  the  basis  against  which  everything  is  compared 
should  have  their  integrity  preserved  by  being  limited  to  the 
actual  cash  transactions  of  the  company. 

While  the  earnings  of  a  company  can  be  easily  ascertained 
under  the  headings  of    the  different  routes  operated,  it  has 


18  ELECTRIC  RAILWAY  ACCOUNTING. 

been  found  by  experience  that  operating  expenses  can  be 
better  understood  and  analyzed  in  total  than  when  separated 
into  as  many  totals  as  there  are  lines  operated.  This  state- 
ment must  not  be  taken  to  mean  that  no  expense  can  or  should 
be  showTi  by  lines,  for  many  expenses  can  be  thus  shown 
definitely  when  necessary,  but  that  necessity  does  not  fre- 
quently exist.  When  it  does,  it  is  usually  for  specific  reasons 
which  are  not  applicable  to  a  regular  monthly  report. 

The  first  requisite  in  a  comparison  of  one  thing  with  any- 
thing else  is  the  knowledge  of  what  constitutes  the  things  com- 
pared. Thus,  in  comparing  the  operating  expenses  of  an 
electric  railway  with  its  earnings,  it  is  not  possible  to  do  so 
intelligently  without  this  knowledge.  And,  again,  there  must 
be  the  assurance  that  what  has  been  placed  either  in  earnings 
or  expenses  in  one  month  is  treated  in  the  identical  manner  in 
another  month,  even  though  the  amount  may  not  be  the  same. 
Therein  lies  the  usefulness  of  the  comparison. 

It  is  this  need  that  has  brought  about  the  present  standard 
classification  of  operating  expense  accoimts. 

Instances  are  known  where  certain  operating  accounts, 
through  mis  judgment  of  the  operating  official  in  ordering  work 
done,  are  over  heavy.  In  this  case  the  practice  sometimes  is 
to  distribute  these  extra  heavy  operating  expenses  through 
other  analogous  operating  accounts  in  order  that  the  account 
naturally  affected  shall  not  show  too  badly  in  the  monthly 
statement.  This  custom  is  pernicious,  and  should  be  discour- 
aged for  reasons  that  are  as  plain  as  the  statement  itself. 
This  should  be  guarded  against  by  a  careful  analysis  of  the 
operating  accomits  each  month.  The  accounting  office  may 
be  required  to  furnish  the  management  of  the  company  a 
careful  analysis  of  the  operating  accounts  in  such  detail  which 
will  disclose  the  actual  performances  of  the  company  as  divided 
into  the  operating  accoimts. 

The  general  rule  can  be  here  laid  dovv-n  that  there  can  be 
but  one  need  of  careful  comparison  and  analysis,  and  that  is 


RELATION  OF  EXPENSES   TO  EARNINGS  19 

that  ways  may  be  pointed  out  for  a  general  betterment  of 
methods  with  the  attendant  results.  If  it  were  only  necessary 
to  know  the  amount  of  mone}^  left  over  for  distribution  to  the 
stockholders,  it  would  be  a  simple  proposition.  But  the  desire 
is  for  as  large  an  amount  as  possible  for  that  distribution,  and 
this  requires  the  several  methods  of  analysis  so  that  the  best 
results  may  bo  obtained  by  intelHgent  and  economical  operation. 

With  standard  methods  of  charging  expenses,  that  matter  is 
settled;  then  come  the  methods  of  comparison.  There  are 
several  of  these,  one  of  them  the  subject  of  this  chapter.  Its 
particular  advantage  lies  in  fixing  the  percentage  of  the  money 
taken  in  that  will  be  required  to  maintain  the  property  in 
working  order,  and  also  to  operate  it.  That  is,  this  percentage 
is  fixed  approximately,  each  company  for  itself,  but  it  is  use- 
ful also  in  comparing  with  the  practice  of  other  companies. 
It  should  be  understood  that  its  use  in  comparison  is  always 
qualified  by  the  words  ''all  things  being  equal."  However, 
experience  has  fixed  each  company's  percentage  pretty  defi- 
nitely, and  to  change  it  requires  a  change  in  either  methods 
or  administration,  which  is  usually  the  same  thing. 

There  are  two  ways  to  affect  this  percentage,  either  by  in- 
creasing earnings  or  reducing  the  expenses.  It  will  frequently 
be  found  that  careful  management  can  save  in  expenses  by 
changing  schedules,  while  not  affecting  the  earnings.  This  is 
good  management,  and  is  shown  promptly  in  the  reduced 
percentage. 

Percentage  is  a  lively  thing,  however,  and  is  liable  to  make 
the  most  surprising  movements,  which  can  only  be  understood 
by  analysis. 

To  obtain  a  relation  of  each  operating  account  to  the  whole, 
its  percentage  to  the  gross  earnings  may  be  shown  and  com- 
pared with  other  months.  In  making  this  comparison  it  should 
be  borne  in  mind  that  unless  the  basis  of  the  comparison,  the 
gross  earnings,  are  approximately  equal,  the  percentage  will 
not  be  the  same.     It  will  be  reduced  in  the  case  of  larger 


'20  ELECTRIC  RAILWAY  ACCOUNTING. 

earnings  and  increased  with  smaller  unless  its  own  size  has 
changed  also. 

Taken  as  a  whole,  the  principal  advantage  of  this  compari- 
son is  in  the  total,  which,  as  a  total,  has  absorbed  the  increases 
and  decreases  in  the  various  items. 

A  rather  better  way  to  obtain  the  relation  of  the  different 
operating  accounts  to  the  whole  may  be  found  in  obtaining 
the  percentage  which  each  of  the  several  accounts  bears  to  the 
total  expense.  In  this  way  the  rise  and  fall  of  the  gross  earn- 
ings does  not  affect  the  percentage.  It  will  be  found  that 
expenses  will  feel  the  increase  in  earnings  only  to  a  moderate 
degree,  especially  if  the  schedules  are  not  widely  varied.  Thus, 
assuming  that  the  amount  expended  for  fuel  in  a  given  month 
has  not  changed  very  much  from  the  previous  month,  and  that 
the  other  operating  accounts  are  approximately  the  same, 
the  percentage  which  each  account  bears  to  the  total  operating 
expenses  will  remain  about  the  same,  even  though  the  earnings 
have  changed. 

The  expenses  will  not  vary  in  the  same  ratio  as  the  earnings 
will  —  or  should  not  with  careful  management.  Therefore, 
if  the  percentage  of  an  operating  account  in  one  month  is 
radically  different  from  that  in  another  month,  while  the  total 
operating  cost  remains  but  slightly  changed,  there  is  room 
for  examination  of  that  account.  If  the  percentage  of  oper- 
ating expenses  to  earnings  is  used  as  a  criterion,  a  change  will 
not  be  noticed  in  the  different  accounts  unless  the  earnings 
remain  almost  stationary,  which  is  not  so  likely  to  be  the  case 
as  with  the  operating  expenses. 

Of  course,  all  the  usual  changes  may  be  noticed  by  com- 
parison of  the  operating  cost  without  the  percentages,  and  it 
is  a  question  if  that  is  not  the  simplest  way,  except  that  per- 
centages will  show  to  a  finer  degree  than  by  the  use  of  dollars 
and  cents. 

Whatever  method  is  used,  one  should  not  lose  sight  of  the 
valuable  comparisons  that  may  be  gained  from  the  combined 


RELATION  OF  EXPENSES   TO  EARNINGS,  21 

expenses  of  the  year  to  date.  This  comparison  will  show  the 
accomplishments  of  changed  methods  as  they  are  getting  ready 
to  appear  in  the  annual  statement,  and  the  need  of  more  radical 
measures  in  order  that  the  annual  showing  may  not  suffer, 
assuming  that  the  property  is  not  made  to  feel  the  showing. 

From  the  above  it  will  be  seen  that  the  percentage  the  total 
operating  expense  bears  to  the  gross  earnings  is  not  the  last 
word  that  may  be  said  of  the  value  of  a  property.  It  will 
only  show: 

(a)  What  percentage  the  property  has  left  for  fixed  charges 
and  distribution. 

(h)  Whether  it  is  doing  as  well  as  or  better  than  in  the  past. 

(c)  All  things  being  equal,  an  approximation  of  the  capacity 
of  the  management. 

It  will  not  show: 

(d)  Where  the  difference  lies,  if  there  is  a  difference. 

(e)  It  will  not  be  an  honest  basis  for  comparison  with  other 
companies,  and 

(/)  It  will  not  show  if  the  property  can  be  operated  cheaper 
than  it  is  being  operated. 

Other  comparisons  and  examinations  are  needed  to  learn 
the  value  of  a  property,  and  it  cannot  be  fixed  without  them. 


CHAPTER   IV. 
SOME  OTHER  UNITS  OF  COMPARISON. 

Since  the  beginning  of  time,  there  has  been  a  constant 
search  for  units  of  comparison  in  all  lines  of  human  action. 
This  is  well  illustrated  in  the  saying  that  the  value  of  anything 
is  its  comparative  value  to  some  other  thing.  There  are  other 
kinds  of  comparisons  than  value,  and  just  as  great  a  search 
has  been  made  for  them.  There  are  comparisons  of  height, 
comparisons  of  speed,  comparisons  of  usefulness,  and  others, 
all  of  them  subdivided  into  classes  of  efficiency,  purpose,  and 
helpfulness. 

The  business  of  transportation  has  its  own  imits  of  compari- 
son, and  each  class  or  kind  of  transportation  has  its  own  and 
many  of  them,  as  it  is  further  divided  into  distinctions  of  kind 
of  service. 

Electric  railways  are  by  the  nature  of  their  business  but 
little,  if  at  all,  interested  in  or  have  use  for  most  of  the  efficiency 
units  of  the  steam  railways,  nor  can  either  of  them  use  those 
of  steamboats.  Thus  it  is  that  each  kind  of  transportation 
must  search  for  and  test  its  own  units. 

Electric  railways  have  lately  become  awake  to  the  fact  that 
the  car  mileage  of  horse-car  days  is  not  sufficient  for  present 
day  electric  operation.  And  it  is  now  searching  for  something 
to  which  it  can  tie  as  an  effective  unit.  The  latest  step  to  the 
betterment  of  its  efficiency  unit  was  taken  when  it  adopted  th*> 
car  hour  as  another  means  of  proving  both  value  and  efficiency. 

Space  will  not  permit  an  exhaustive  discussion  of  the  differ- 
ent present  and  possible  units  of  comparison,  but  several  kinas 
will  be  touched  upon,  and  it  may  be  that  some  good  will  come 
from  the  reference  to  the  different  kinds. 

22 


OTHER  UNITS  OF  COMPARISON.  23 

In  the  first  place,  it  is  doubtful  if  the  time  is  near  that  the 
value  and  the  efficiency  of  a  company  can  be  wholly  gauged 
by  the  use  of  but  one  imit.  It  seems  necessary  that  more 
than  one  will  be  required  for  some  time  to  come.  For  pur- 
poses of  its  own,  a  company  may  use  any  one  unit,  but  one 
only  will  not  suffice  for  comparison  with  other  companies. 
That  is  usually  what  is  desired  in  a  unit.  It  is  especially  true, 
if  the  operating  and  other  conditions  are  not  the  same. 

The  imits  of  the  percentage  of  operating  expenses  to  gross 
earnings,  and  of  the  percentage  of  the  operating  expense  items 
to  the  total  operating  expenses,  were  considered  in  a  previous 
chapter.  They  will  show  that  all  units  cannot  be  used  for  all 
purposes;  for  instance,  neither  of  those  named  provide  a  basis  for 
comparing  the  earnings.  Therefore,  while  there  may  be  many 
units  for  special  purposes,  there  are  but  one  or  two  that  can 
be  used  in  a  broad  way.  Of  them  all,  the  car  hour  at  the 
present  time  comes  closest  to  satisfaction,  and  it  seems  cer- 
tain that  only  the  most  radical  change  in  operating  conditions 
can  ever  weaken  its  value. 

In  few  words,  the  car  hour  is  simply  the  hours  the  cars  are 
out  of  the  barns  in  service,  and  includes  all  time  they  are  held 
by  blockades  or  other  causes.  It  is  based  upon  the  principle 
that  but  little  of  the  operating  expense  can  be  stopped  or  even 
checked  when  a  day  has  started,  and  that  if  most  of  the  cars 
are  blocked,  the  expense  in  large  degree  will  be  continued 
even  though  the  earnings  may  wholly  cease.  And  it  is  right 
that  a  unit  should  continue,  because  operating  efiiciency 
requires  it  should. 

This  is  a  point  where  car  mileage  is  not  equal  to  its  test. 
For  in  a  blockade  the  mileage  ceases,  the  car  has  stopped,  but 
the  car  hour  (the  car  being  away  from  the  barn  and  under 
expense)  keeps  on.  The  car  mile  would  protect  the  earnings, 
as  the  earnings  have  stopped  with  the  car.  But  it  is  not  so 
fair  to  the  expenses,  which  must  show  a  high  cost  per  car  mile, 
as  they  have  not  ceased  for  a  moment  even  if  the  mileage  has. 


24  ELECTRIC  RAILWAY  ACCOUNTING. 

Another  point  in  favor  of  the  car  hour  is  that  it  absorbs  the 
difference  in  speed.  To  the  car  mile,  a  mile  is  a  mile,  and  that 
is  all  there  is  to  it  —  but  to  the  car  hour,  if  the  car  may  be  run 
twice  as  fast  and  earn  twice  as  much  by  doubling  the  trips,  it 
gains  that  much  in  earning  efficiency  per  hour,  and  it  should, 
but  the  car  mile  would  show  no  gain  from  the  increased  speed. 

No  method  was  employed  that  was  at  all  satisfactory  to 
arrive  at  the  average  speed  of  a  line  until  the  car  hour  was 
used,  to  divide  into  the  car  miles  run.  This  process  will  give 
the  average  speed,  and  it  is  good  to  know  in  comparison  with 
the  speed  figured  upon  in  the  schedule.  It  demonstrates  how 
closely  the  schedule  in  point  of  speed  may  be  maintained  as 
an  average.  Thus  the  car  hour  will  place  upon  a  sure  basis 
all  cars  operated  at  different  speeds. 

A  short  means  of  checking  the  car  hours  is  possible  by  tak- 
ing the  platform  time  allowed  the  motormen  on  the  pay-rolls. 
This  is  another  point  wherein  the  car  mileage  imit  is  deficient 
as  it  is  difficult  to  determine  it  with  accuracy.  The  computa- 
tion of  mileage  is,  at  the  very  best,  uncertain.  Every  method 
used  depends  upon  information  furnished  by  the  conductor, 
either  upon  his  trip  report  or  to  the  car  dispatcher  at  the  barn. 
Were  there  no  blockades  upon  the  line  of  route,  or  no  necessity 
to  switch  the  car  back  at  unusual  points,  the  mileage  could 
then  be  ascertained  to  a  fraction ;  but  these  necessities  do  arise 
constantly,  and  when  they  do,  the  computation  of  mileage 
depends  wholly  upon  the  accuracy  of  the  conductor  in  report- 
ing it.  Experience  will  show  that  conductors  do  not  always 
realize  the  importance  of  the  information,  and  fail  to  make 
the  proper  report,  in  which  case  the  car  miles  are  computed 
at  the  full  amount  and  so  in  error.  But  car  mileage  is 
arrived  at  approximately  close  to  the  actual,  and  it  has  much 
value  along  certain  lines. 

Car  mileage  consists  of  two  kinds,  dead  mileage  and  revenue 
mileage.  Revenue  mileage  means  the  miles  run  by  cars  on 
regular  runs,  ready  to  bring  in  revenue.     Dead  mileage  is  well. 


OTHER   UNITS   OF  COMPARISON.  25 

described  by  its  name,  that  is,  it  consists  of  the  miles  run  from 
and  to  the  car  house  in  order  to  arrive  at  its  starting-place 
upon  its  regular  route.  This  mileage  is  literally  dead.  Fre- 
quently the  cars  make  this  trip  twice  a  day  with  gates  closed, 
permitting  no  passengers,  and  so,  in  a  sense,  it  is  waste  mileage, 
for  if  the  car  barns  could  be  placed  at  some  middle  spot  there 
would  be  no  dead  mileage,  because  the  cars  would  start  from 
their  barns  upon  their  route.  But  this  is  very  seldom  per- 
missible through  the  cost  of  land  and  other  causes  ;  therefore, 
dead  mileage  is  a  necessity,  and  as  such  must  be  included 
with  revenue  mileage  to  get  the  total  mileage  to  do  and  doing 
business.  Many  companies  do  not  do  this,  and  this  fact  per- 
mits a  better  showing  than  actually  is  made.  But  at  least  for 
operating  purposes  the  dead  mileage  should  be  kept  track  of 
so  that  its  cost  may  be  computed.  Frequently  the  cost  of 
this  dead  mileage  will  be  so  large  that  it  will  be  good  business 
policy  to  change  the  location  of  the  barns  that  it  may  be 
reduced  to  its  minimum. 

One  of  the  uses  of  car  mileage  is  for  the  demonstration  of 
the  efficiency  of  car  equipment.  Many  parts  of  the  car  and 
electrical  equipment  are  renewed  after  attaining  a  certain 
mileage,  and  frequently  some  parts  are  purchased  with  a 
guarantee  to  make  a  certain  mileage.  Hence,  the  mileage  of 
each  individual  car  should  be  kept,  when  possible,  so  that  the 
equipment  department  may  be  fully  advised  of  what  is  some- 
times known  as  the  performance  of  the  car.  Thus,  mainten- 
ance has  a  use  for  car  mileage,  and  custom  has  made  its 
relation  to  earnings  and  expenses  so  familiar  that  it  will 
continue  as  one  of  the  units  used  in  comparisons  of  street  rail- 
way operation. 

There  may  be  a  time  when  "per  passenger  carried"  will 
take  a  more  important  place  as  a  unit  than  it  now  occupies, 
but  it  is  doubtful  if  it  will  reach  the  position  occupied  by  ''per 
car  hour"  and  ''per  car  mile."  It  has  much  in  its  favor  as  a 
unit,  but  it,  like  all  the  others,  falls  short  of  being  the  unit.     It 


26  ELECTRIC  RAILWAY  ACCOUNTING.  | 

1 
is  subject  to  the  blockade  criticism  applied  to  the  car  mile  as  > 
an  operating  unit.  Its  chief  use  is  to  give  a  figure  showing  \ 
with  or  without  the  inclusion  of  transfers  what  average  amount 
is  being  received  from  each  passenger  moved,  and  also  what  it 
has  cost  to  perform  the  service.  Present  custom  leaves  it  at  1 
about  that  point. 

Another  miit  that  is  subject  to  objection  and  yet  has  its  ''\ 
uses  is  '^per  seating  capacity/'  that  is,  the  seating-room  pro-  ' 
vided.  This  unit  requires  much  calculation  of  the  schedule,  .' 
and  can,  at  its  best,  be  used  only  in  the  work  known  as  ''traffic 
curves,"  which  is  a  plan  sometimes  used  to  show  the  traffic 
throughout  a  day,  and  in  connection  with  it  the  cars  provided 
to  take  care  of  the  business.  The  process  is  shown  by  means 
of  curves,  and  the  seating  capacity  unit  is  employed  to  show 
how  closely  the  service  comes  to  the  traffic.  It  can  hardly  be 
used  with  any  satisfaction  in  a  statement.  It  may  be  arrived 
at,  if  desired,  by  multiplying  the  number  of  trips  of  each  kind 
of  car  by  the  seats  provided  in  them.  Rush  hours  will  be  found 
to  offset  light  hours  in  any  average  to  show  that  the  capacity 
is  sufficient,  when  the  truth  would  be  that  either  too  many  ^ 
cars  are  operated  in  light  hours,  or  too  few  in  rush  hours.  It  is 
this  that  makes  the  traffic  curves  valuable. 

Another  unit  constantly  used,  but  in  connection  with  earn- 
ings only,  is  per  capita,  which  shows  the  average  earnings 
received  from  each  person  in  the  city,  if  an  urban  road,  or  in 
the  district  served,  if  suburban  or  interurban.  It  is  based 
upon  census  figures  in  census  years,  but  is  dependent  upon 
estimated  population  in  other  years.  Statistics  on  popula- 
tion are  so  elusive,  and  depend  so  frequently  upon  optimism, 
that  the  unit  is  not  often  accurate,  although  approximately 
so.         ^ 

A  percentage  of  the  estimated  population,  and  of  the  actual 
as  well,  which  is  not  easily  determined,  is  the  transient  or 
floating  population.  This  temporary  population  is  usually  a 
good  patron  of  a  railway  company,  and,  as  such,  affects  the 


OTHER   UNITS  OF  COMPARISON.  27 

earnings  without  affecting  the  population.  So  that  at  its  best 
this  unit  is  far  from  satisfactory.  It  is  rarely  used  in  the 
statements  of  a  company,  but  it  is  of  considerable  value  to 
the  investor  and  student  of  electric  railways. 

As  a  general  rule,  a  large  city  has  a  large  per  capita  income. 
But  that  is  open  to  the  explanation  that  a  large  city,  congested 
and  placed  on  a  plain,  will  not  have  so  large  per  capita  earn- 
ings as  another  of  less  population  but  located  on  a  peninsula 
where  most  of  the  population  live  at  one  end  of  the  peninsula 
with  their  business  places  at  the  other.  Hills  also  have  a 
bearing,  as  do  other  features.  As  said  above,  the  unit  is  always 
interesting  and  sometimes  valuable. 

Without  considering  some  few  other  units  of  varying  use- 
fulness, we  find  that  the  idea  of  a  general  unit  to  be  applied  to 
all  purposes  is  not  yet  attained,  nor  is  it  liable  to  be;  that 
probably  the  most  generally  useful  unit  to-day  is  the  car  hour, 
with  others  suitable  to  special  needs;  that  each  unit  has  its 
value,  especially  when  placed  side  by  side  with  other  units, 
and  it  may  be  assumed  that  as  many  as  possible  may  be  used 
without  confusion. 


CHAPTER  V. 
CURVES  AS  A  MEANS  OF  EXPRESSION. 

In  the  performances  and  efficiency  of  steam  and  electric 
equipment,  and  in  the  preparation  of  civil  engineering  infor- 
mation, curves  are  always  employed,  but  their  value  as  applied 
to  income  and  expenses  and  operating  statistics  is  not  so 
frequently  recognized. 

In  connection  with  this  chapter  a  number  of  suggested 
forms  are  shown  to  illustrate  the  value  of  curves  or  diagrams 
in  quickly  and  intelligently  grasping  the  changes  in  the  opera- 
tion of  a  property. 

It  should  be  explained  that  the  results  shown  in  these  curves 
are  taken  from  the  reports  of  companies  in  active  operation, 
and  they  cover  the  years  shown.  It  is  unnecessary,  of  course, 
to  mention  the  names  of  the  companies,  but  they  are  average 
companies,  and  have  each  attained  a  considerable  degree  of 
success.  There  is  nothing  exceptional  about  them,  and  the 
results  as  shown  can  be  shown  with  equal  lucidity  by  any  other 
company. 

The  writer  has  known  of  an  instance  where  an  auditor  made 
it  a  practice  to  accompany  his  monthly  report  to  the  board 
of  directors  with  a  set  of  curves  somewhat  similar  to  the  ones 
illustrated  herein,  and  the  experience  was  that  the  directors 
formed  the  habit  of  having  the  curves  placed  before  them 
before  they  asked  to  see  the  monthly  report.  The  reason  is 
not  hard  to  find,  because  at  a  glance  they  obtained  a  picture 
of  the  general  results  before  attempting  to  analyze  the  dollars 
and  cents,  as  a  slight  raise  or  drop  in  the  line  is  much  easier  to 
grasp,  and  it  is  also  easier  to  carry  in  one's  mind  than  is  the 
difference  in  the  money  involved. 

28 


CURVES.  29 

The  method  of  showing  results  by  the  use  of  curves  is  known 
as  the  ''graphic"  method,  and  it  would  seem  that  this  word 
well  describes  it,  for  it  certainly  does  show  differences  and 
tendencies  more  c|uickly  and  clearly  than  by  the  mere  recital 
of  figures. 

By  a  reference  to  the  examples  shown,  it  will  be  seen  that 
curves  may  be  made  comparative  to  a  very  marked  degree, 
for  by  the  use  of  broken  lines,  and  also  of  lines  of  different 
colors,  the  comparison  may  go  on  indefinitely. 

The  curves  need  not  be  limited  to  the  exposition  of  money 
results  only,  but  their  use  may  be  extended  to  cover  car  mile- 
age, car  hours,  percentages,  passengers  carried,  kilowatt  hours, 
and  numerous  other  matters  that  may  be  of  interest.  And  in 
order  to  give  them  wide  circulation  and  usefulness  they  may 
be  made  the  subject  of  blue  print  reproduction,  in  which  form 
they  can  be  distributed  to  whomever  concerned.  It  is  true 
that  they  will  not  show  details  down  to  the  last  dollar  in  money, 
nor  do  they  indicate  the  finest  of  distinctions  in  other  matters, 
but  when  carefully  plotted  they  will  show  results  near  enough 
to  the  actual  to  serve  their  purpose  exceedingly  well. 

They  may  be  plotted  on  paper  having  almost  any  kind  of 
cross-ruling,  but  better  results  will  be  obtained  if  paper  ruled 
ten  lines  to  the  inch  is  chosen,  for  the  reason  that  it  more  easily 
lends  itself  to  the  decimal  system,  and  the  approximations, 
when  necessary,  will  be  the  more  accurately  placed.  It  should 
also  be  remembered  that  more  accuracy  will  be  obtained  if 
the  values  placed  upon  the  different  lines  be  not  of  too  large 
denomination.  General  practice  will  probably  show  that  a 
difference  of  five  hundred  per  line  is  about  as  large  as  ordi- 
nary purposes  can  stand.  There  are  occasions  when  this  dif- 
ference may  successfully  be  increased,  but  experience  only 
will  show  when  and  how. 

The  curves  can  easily  be  arranged  on  a  roll  long  enough  to 
contain  each  day  of  the  year  along  the  top  edge,  and  the  earn- 
ings, passengers  carried,  etc.,  along  the  sides.     The  daily  re- 


30 


ELECTRIC  RAILWAY  ACCOUNTING. 


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34 


ELECTRIC  RAILWAY  ACCOUNTING, 


CURVES.  35 

suits  of  operation  may  then  be  plotted  on  this  sheet,  in  a  com- 
parative form  too,  if  desired.  The  most  satisfactory  compara- 
tive results  will  be  obtained  if  the  days  of  the  week  are 
recorded  at  the  top  as  well  as  the  days  of  the  month,  and 
the  corresponding  days  of  the  week  plotted  upon  each  other. 

It  will  also  be  found  a  good  plan  to  mount  the  pages  of 
curves  in  a  book  large  enough  to  contain  them  with  not  more 
than  one  fold.  This  will  allow  them  to  remain  flat,  which, 
for  short  pieces  of  paper,  is  much  to  be  preferred  to  rolling. 

A  short  persistent  experience  will  show  a  number  of  ways 
in  which  corresponding  results  may  be  displayed  graphically, 
and  by  this  method,  when  thoroughly  grasped,  satisfactory 
results  will  be  obtained. 

In  explanation  of  the  curves  given  herein,  attention  is  called 
to  Chart  No.  1.  This  chart  illustrates  the  effect  which  special 
occasions  have  upon  the  earnings.  It  shows  the  earnings  of 
one  route  or  line  for  the  years  1903  and  1904;  1903  is 
shown  by  a  solid  line,  and  1904  by  one  that  is  broken.  Atten- 
tion is  drawn  to  the  few  explanatory  notes  placed  upon  the 
curve.  The  ''peak"  at  October,  1903,  is  due  to  the  regular 
racing  season.  The  curve  shows  by  comparison  with  the 
''peak"  at  September,  1904,  that  as  a  whole  this  line  did  not 
earn  so  much  during  the  racing  season  as  in  the  previous  year. 

It  makes  plain,  however,  that  the  same  earnings  for  Janu- 
ary of  each  year  were  due  to  the  great  quantity  of  snow  Avhich 
fell  during  that  month  in  1904. 

The  note  at  February,  1904,  indicates  that  a  new  power 
house  was  put  into  service,  and  at  the  same  time  the  schedules 
were  rearranged,  because  of  more  power,  which  permitted  the 
line  to  give  better  service  and  to  receive  better  earnings,  as 
shown  by  the  steady  climb  of  the  line  to  May,  1904. 

Assuming,  for  the  sake  of  argument,  that  the  convention  in 
June  had  not  been  held  in  1904,  and  that  the  curve  had  fol- 
lowed the  tendency  shown  by  the  ringed  line,  the  effect  of  the 
new  power  and  new  schedules   would   have  been   a  gain  in 


36  ELECTRIC  RAILWAY  ACCOUNTING. 

earnings  of  nearly  ten  per  cent.,  even  with  the  decreased  earn- 
ings through  racing-week.  This  curve  is  drawn  upon  a  scale 
of  $100  to  the  line  in  order  that  the  differences  may  show 
plainly,  the  route  being  a  small  one. 

A  feature  of  this  curve  that  is  valuable  for  comparative 
purposes,  is  the  linking  of  the  previous  December  to  the  show- 
ing for  each  year.  This  permits  a  better  grasp  of  the  "ten- 
dencies" of  the  line  than  can  be  obtained  by  making  each 
year  stand  by  itself.  It  really  means  that  December  of  each 
year  is  sho\\Ti  twice,  once  at  the  end  of  the  year,  and  once  to 
begin  the  next. 

Charts  Nos.  2,  3,  and  4  go  together.  The  particular  interest 
which  attaches  to  them  is  that  the  earnings  show  a  healthy 
increase  until  July,  when,  as  the  note  states,  an  industrial 
strike  began  and  extended  for  four  months.  The  effect  upon 
the  earnings  is  very  clearly  shown.  It  may  be  assumed  that 
the  earnings  could  not  be  controlled  under  the  circumstances, 
and  so  we  will  pass  to  curve  No.  3,  to  see  what  effect  the  very 
greatly  reduced  earnings  had  upon  the  operating  expenses. 
This  curve  indicates  at  once  that  the  expenses  did  not  drop  in 
the  same  ratio  as  the  earnings,  but  also  that  while  October 
and  November  display  an  actual  decrease  in  earnings  compared 
with  1903,  the  expenses  are  increased  practically  as  much 
over  1903  as  they  were  in  the  early  part  of  the  year  with  in- 
creased earnings.  It  also  shows  that  while  the  earnings  in 
September  and  October  are  almost  identical,  the  expenses 
increased.  And  in  December  when  the  strike  ended,  the 
earnings  responded  quickly,  while  the  expenses  did  more  slowly. 

Chart  No.  4  shows  the  percentage  of  operating  expenses  to 
gross  earnings  during  the  same  period,  and  serves  to  empha- 
size how  slowly  the  expenses  followed  the  earnings  down. 

It  is  not  intended  to  convey  the  impression  that  Charts 
Nos.  3  and  4  show  in  an  infallible  way  that  the  methods  of 
operation  were  at  fault  during  the  period  of  the  strike;  the 
idea  which   it    is    desired   to   illustrate  being   that   by  thus 


CURVES.  37 

showing  the  expenses  and  the  percentage  of  operatmg  ex- 
penses to  earnings,  it  becomes  possible  to  see  the  results  in 
such  a  light  that  proper  investigations  may  be  made  into  the 
causes. 

Chart  No.  5  shows  the  earnings  and  the  car  miles  operated 
upon  a  single  line  during  1903  and  1904.  It  will  be 
seen  that  this  curve  combines  not  only  the  car  mileage  of  this 
line  compared  for  the  two  years,  but  it  also  has  the  earnings 
produced  by  the  car  mileage  plotted  upon  the  same  squares  at 
as  near  the  same  scale  as  possible. 

The  reason  for  this  combination  is  to  see  how  closely  the 
tendencies  of  the  car  mileage  have  followed  the  earnings,  and 
the  attention  is  fixed  immediately  upon  the  wider  space  be- 
tween the  mileage  and  the  earnings  in  1904  than  exists  in 
1903.  In  the  latter  year  the  two  lines  follow  closely  the  same 
direction,  except  during  the  summer  months,  when  a  wider 
space  separates  them.  The  year  1904,  while  following  ten- 
dencies about  the  same,  shows  the  mileage  at  a  wider  distance 
from  the  earnings.  The  result  of  this  difference  is  an  increase 
of  115,688  car  miles  to  earn  an  increase  of  $11,340,  which  is 
10.2  miles  for  each  dollar  of  increased  earnings.  This  has 
reduced  the  earnings  per  car  mile  1.05  cents  for  the  year  1904, 
from  the  amoimt  earned  in  1903. 

It  should  be  explained  that  the  curve  of  the  car  hours  oper- 
ated for  the  two  years  is  not  reproduced,  for  the  reason  that 
the  speed  has  not  materially  changed  during  the  period,  and 
so  the  result  is  not  changed  by  them. 

One  striking  thing  to  be  noticed  is  that  the  car  miles  oper- 
ated in  June  of  each  year  have  been  very  largely  increased, 
yet  the  earnings  have  not  responded  in  either  year. 

As  explained  at  the  beginning  of  this  chapter,  there  is  noth- 
ing special  about  the  figures  selected  to  be  charted  here. 
Nor  is  there  anything  that  cannot  be  reproduced  by  any 
company  with  its  own  figures.  There  is  no  limit  to  the  use- 
fulness ofthe  plan ;   and  as  it  is  quite  possible  to  keep  the  curve 


38  ELECTRIC  RAILWAY  ACCOUNTING. 

up  to  date  by  adding  each  month  as  it  occurs,  the  tendencies 
of  the  curve  may  be  checked  at  any  time  by  the  necessary 
change  of  operating  methods. 

Closer  study  of  the  curves  reproduced  here  will  reveal  other 
indications  than  those  mentioned.  The  few  characteristic 
points  noted  above  have  been  selected  simply  to  attract  at- 
tention to  the  usefulness  of  the  curve  as  a  means  of  expression. 


CHAPTER  VI. 
STATISTICAL  INFORMATION. 

If  the  monthly  report  of  a  company  is  considered  along  the 
lines  of  an  historical  statement,  there  is  every  reason  why  it 
should  not  be  restricted  to  expressions  of  dollars  and  cents  alone. 

It  is  extremely  helpful  and  important  if  the  managing  offi- 
cial will  add  to  the  report  from  the  accoimting  department  a 
detailed  statement  of  the  performances  of  his  equipment,  the 
men,  and  what  has  been  accomplished  by  the  power  house, 
the  shops,  on  the  track,  and,  in  brief,  every  feature  of  railway 
operation.  There  should  be  included  comparative  statistics 
of  pay-rolls  and  men  employed,  and  the  hundred  and  one 
other  things  that  should  be  taken  out  of  the  realm  of  memory 
and  placed  in  actual  figures  easy  of  access.  It  is  not  enough 
to  know  the  pounds  of  coal  consumed,  the  gallons  of  water 
evaporated,  and  the  kilowatt  hour  output  of  the  power  house. 
There  should  be  added  to  these  many  other  data  compiled 
from  the  daily  and  other  records  of  the  performances  of  the 
power  house,  and  when  thus  gathered  together  this  informa- 
tion should  be  accurately  and  intelligently  compared  with 
either  the  same  month  of  the  previous  year  or  the  previous 
month.  Nor  is  it  too  much  to  insist  that  these  statistics 
should  be  carried  along  for  the  accumulathig  period  until  the 
end  of  the  fiscal  year. 

It  is  common  practice  that  daily  reports  are  made  by  master 
mechanics,  chief  engineers  of  the  power  house,  and  other  heads 
of  the  different  divisions  of  the  operating  department,  but  it 
is  comparatively  infrequent  when  these  daily  reports  are  com- 
piled hi  monthly  form  and  persistently  compared  with  the 
report  of  the  accounting  department. 

39 


40  ELECTRIC  RAILWAY  ACCOUNTING. 

In  a  previous  chapter,  where  curves  as  a  means  of  expression 
are  discussed,  will  be  found  some  suggestions  as  to  how  they 
may  be  used  to  assist  the  operating  official  to  grasp  quickly 
the  performances  of  the  different  departments.  The  time  has 
undoubtedly  passed  when  the  operation  of  a  street  railway 
company  consists  of  putting  cars  on  the  road  in  the  morning 
and  taking  them  off  at  night.  The  methods  of  operation  have 
gone  so  far  beyond  the  days  of  horse-car  methods  that  trans- 
portation of  the  present  day  can  be  accurately  described  as  a 
science. 

The  details  of  an  electric  railway  are  enormous.  There  are 
so  many  opportunities  for  small  leaks,  and  the  number  of  men 
employed  is  frequently  so  large,  that  it  is  a  physical  impossi- 
bility for  the  official  in  charge  of  it  all  to  give  his  personal  over- 
sight to  every  part  of  the  company,  but  it  is  possible  for  him 
to  obtain  the  most  accurate  comprehension  of  the  work  of 
the  different  departments  and  the  department  heads  through 
carefully  prepared  statistical  statements.  The  argument  may 
be  advanced  that  such  statements  cost  money,  and  so  they 
undoubtedly  do.  They  frequently  require  clerks  in  depart- 
ment offices  where  none  are  now  employed,  and  they  may  also 
require  an  additional  clerk  in  those  offices  that  now  have  one 
or  more;  but  it  is  a  true  saying  that  ''the  successful  man  is 
the  man  who  knows  how  to  spend  money  to  make  money," 
and  it  is  equally  true  that  a  successful  man  will  spend  money 
in  order  to  save  other  and  more  money,  which  is  another  way 
of  saying  the  same  thing.  The  cost  of  an  additional  clerk  is 
small  compared  with  the  value  of  the  additional  intelligent 
information  that  may  be  obtained,  and  from  this  information 
the  operating  official  may  be  placed  in  most  intimate  touch 
with  the  work  that  he  cannot  see. 

It  is  quite  reasonable  to  say  that  the  cost  of  an  additional 
clerk,  perhaps  $600  per  year,  can  be  easily  saved  if  the  statis- 
tical information  is  intelligently  asked  for  and  carefully  ar- 
ranged. 


STATISTICAL  INFORMATION.  41 

Take,  for  instance,  a  comparative  statement  of  pay-rolls 
and  men  employed.  These  can  be  so  calculated  that  the 
average  earnings  per  man  in  each  department  are  ascertained, 
and  can  be  placed  in  comparison  with  previous  months  or 
previous  periods,  and  expectancy  for  coming  periods.  The 
questions,  suggested  by  such  a  statement,  that  will  come  from 
a  manager's  desk  as  to  why  the  number  of  men  employed 
is  increasing  or  decreasing,  why  the  average  cost  per  man  is 
changing,  and  why  the  number  of  hours  worked  is  less  or 
more  than  the  period  under  comparison,  will  awaken  inves- 
tigation and  open  the  way  to  corrections  of  policy. 

Consider  also  the  value  to  the  manager  of  a  statement  show- 
ing in  comparative  form  the  number  of,  and  in  parallel  col- 
umns the  character  of,  the  accidents  that  have  taken  place 
upon  the  road.  Effects  have  causes.  Therefore,  from  the 
study  of  such  a  statement  of  effects  it  is  frequently  possible 
to  regulate  the  causes  that  brought  them  about. 

There  is  no  doubt  that  every  company  makes  it  a  point  to 
gather  together  in  various  forms  some  statistical  information. 
It  is  always  done  with  the  best  of  intentions,  but,  unless  the 
information  so  gathered  is  studied  and  made  of  use,  it  has  but 
little  value.  It  is  discouraging,  to  say  the  least,  to  the  ordi- 
nary clerk,  to  see  part  of  his  work  given  but  casual  attention. 
He  does  not  always  appreciate  the  value  of  compiled  infor- 
mation, and  unless  he  sees  that  others  apply  what  he  has  gath- 
ered, he  will  be  liable  to  do  his  work  carelessly.  It  is  all  wrong, 
of  course,  that  he  should  do  so,  but  it  is  human  nature  to 
desire  to  see  work  accomplished  usefully.  If  this  stage  is 
reached,  the  manager  is  liable  to  find,  when  he  really  wants 
the  information,  that  it  is  not  of  very  much  account,  and  all 
the  while  he  has  been  letting  the  usefulness  of  the  accurate 
information  slip  away  from  him. 

Accountants,  perhaps  as  a  part  of  their  habits  and  their 
work,  are  usually  interested  in  gathering  together  information 
of  this  kind.     The  work  of  the  accounting  department  is  really 


42  ELECTRIC  RAILWAY  ACCOUNTING. 

a  sort  of  statistical  work,  and  very  valuable  facts  standing 
either  by  themselves  or  in  comparative  form  can  always  be 
issued  from  that  office.  But  the  manner  in  which  things  are 
used  is  usually  the  factor  as  to  the  value  placed  upon  them, 
and  if  statistics  requiring  research,  and  into  which  very  much 
work  has  gone,  are  used  casually  or  lightly,  there  A^ill  of  neces- 
sity be  not  much  more  forthcoming  than  is  required.  One 
accoimtant  not  long  ago  said  in  the  presence  of  the  writer, 
that  he  always  "boiled  down"  the  statistics  gathered  in  his 
office  into  a  small  penciled  statement,  as  he  found  the  man- 
agement was  not  interested  in  more  detail.  It  seems  as  though 
that  management  is  missing  an  opportunity,  for  details  care- 
fully studied  will  often  start  investigations  that  will  lead  to 
economies  and  additional  activities,  either  of  which  will  serve 
the  double  purpose  of  increasing  the  return  to  the  stockhold- 
ers and  adding  to  the  reputation  of  the  management. 

Statistics  take  several  forms,  and  somewhere  will  touch  a 
spot  in  the  work  of  the  company  where  they  are  needed.  If 
carefully  gathered  and  distributed  among  the  heads  of  depart- 
ments, and  if  their  use  is  encouraged,  they  cannot  fail  to  better 
conditions. 

Too  much  stress  cannot  be  placed  upon  the  need  of  accuracy 
in  the  compilation  of  this  information,  for  a  slight  error  may 
easily  throw  a  comparison  out  of  line  yet  not  make  a  difference 
noticeable  enough  to  awaken  attention. 

The  average  company  is  careful  to  compile  interesting  and 
accurate  statistics,  but  each  department  is  working  by  and 
for  itself.  It  is  the  need  of  including  all  these  details  in  one 
general  report  that  is  m-ged.  The  same  principle  applies  as 
with  the  accoimts,  which  no  one  would  think  of  segregating 
into  departments  and  not  summing  up  into  one  general  state- 
ment of  operating  costs.  All  effort  put  forth  by  a  company 
has  but  one  purpose,  and  it  is  as  necessary  to  gather  all 
statistical  information  into  one  place  as  it  is  the  accounting 
detail  of  operating  costs. 


STATISTICAL  INFORMATION.  43 

An  argument  in  favor  of  one  complete  statistical  statement 
that  offsets  all  arguments  against  the  plan  is  that  the  statistics 
when  placed  in  contact  with  the  auditor's  statements  of  cost 
have  to  bear  a  more  searching  examination.  Thus  another 
form  of  scrutiny  is  obtained,  and  it  is  a  very  valuable  one. 

Were  it  not  that  the  word  "  accounting "  forms  the  limit 
around  the  discussion  in  these  pages,  it  might  be  expected  that 
a  suggested  form  would  be  given  as  a  guide  to  the  gathering 
of  statistics.  But  because  of  the  varying  size  and  operating 
methods  of  the  companies,  and  because  of  the  many  methods 
of  generation,  distribution,  and  use  of  the  electrical  energy,  it  is 
quite  impossible  to  give  here  any  suggested  form  statistical 
information  should  take.  In  addition  it  will  be  remembered 
that  there  is  no  standard  form  of  statistical  statement  at  this 
time,  hence  each  company  must  decide  for  itself  what  it 
wishes  to  know. 

This  subject  could  be  carried  on  to  an  extended  argument 
in  favor  of  operating  statistics  properly  compared  with  pre- 
vious and  like  periods.  It  seems  hardly  necessary  to  continue 
further  except  to  point  out  that  whatever  statements  are 
asked  for  should  be  so  carefully  constructed  that  the  in- 
formation will  not  be  duplicated,  and,  as  explained  in  the 
chapter  relating  to  the  accounting  report,  the  statements 
should  be  logically  arranged. 


CHAPTER  VII. 
WHAT  STANDARDIZATION  OF  ACCOUNTS  MEANS. 

What  is  known  as  the  standard  classification  of  construc- 
tion, equipment,  and  operating  expense  accomits  for  electric 
railways  was  formulated  and  ^adopted  after  much  discussion, 
by  an  organization  known  as  the  Street  Railway  Accountants' 
Association  of  America. 

The  object  of  the  classification  is  to  provide,  in  concise  and 
logical  form,  a  list  of  accounts  which  may  be  taken  by  electric 
railways  to  show  what  —  in  various  items  —  it  has  cost  to 
construct  and  equip  the  property,  and  by  the  use  of  other 
accounts  to  show  thereafter  what  it  has  cost  to  maintain  and 
operate  it. 

The  accoimts  selected  and  adopted  are  few  in  number, — 
fifteen  in  the  construction  and  equipment  section,  and  thirty-  ^^ 
nine  in  the  maintenance  and  operation  section.  The  titles 
and  the  order  in  which  the  titles  were  made  to  follow  each 
other,  and  the  definition  of  what  each  account  should  contain, 
represent  the  consensus  of  operating  and  accounting  opinion 
and  the  experience  of  a  large  number  of  electric  railway  men. 

It  has  been  in  service  several  years  and  is  widely  adopted, 
so  that  there  can  be  no  question  of  propriety  in  calling  the 
classification  standard.  This  classification  has  done  as  much 
to  clear  away  the  mystery  that  had  grown  up  about  invest- 
ments in  electric  railroads  as  any  other  single  thing.  It  is 
not  too  much  to  say  that  it  has  had  a  very  marked  influence 
upon  the  intelligent  operation,  and,  therefore,  the  intelligent 
investment  in  the  securities  of  this  class  of  railroad  transpor- 
tation. 

A  simple  illustration  of  how  it  has  worked  and  the  need  of  it 

44 


STANDARDIZATION  OF  ACCOUNTS.  45 

is  shown  in  the  case  of  the  small  company.  There  are  hun- 
dreds of  these  little  companies,  none  of  which  can  afford  to 
have  in  its  employ  an  accountant  of  the  higher  class,  nor  is 
there  work  enough  to  keep  him  busy  if  it  could  be  afforded. 
If  no  standard  classification  existed,  the  natural  plan  would  be 
to  place  the  accounts  in  the  charge  of  some  one  taken  from  a 
bank  or  other  commercial  line,  and  with  the  help  of  the  officers 
of  the  company  a  plan  be  outlined  and  followed.  Naturally, 
their  method  of  showing  expenses  would  agree  but  little  with 
that  of  other  companies,  and  the  result  would  be  much  con- 
fusion and  doubt,  not  only  on  their  part  if  they  attempt  to 
compare  with  other  companies,  but  to  their  bankers  also,  who, 
being  interested  in  other  companies,  could  form  no  comparison 
between  them. 

But  imagine  the  difference  when,  by  the  adoption  of  a  stan- 
dard method  of  showing  expenses,  all  the  small  companies 
become  similar  in  accounting  methods,  and  the  same  expres- 
sions are  used  for  the  same  meanings.  The  situation  is  sim- 
plified further  by  the  adoption  of  the  same  system  by  the  large 
companies,  until  gradually  the  titles  of  the  accounts  have 
come  to  have  but  one  meaning. 

Standardizing  the  operating  and  construction  accounts  has 
cleared  the  atmosphere,  and  now  a  company  has  the  plan  laid 
down  for  it  and  a  chart  prepared  according  to  which  it  may 
sail.  The  manager  who  will  start  with  the  positive  informa- 
tion that  the  accounts  of  his  company  and  those  of  another 
contain  the  same  items,  and  still  finds  the  comparison  not  to 
his  advantage,  is  in  a  position  to  analyze  his  expenses  for  the 
little  leaks  or  larger  errors  of  judgment.  So,  by  its  use,  accurate 
methods  are  brought  to  the  small  company  as  well  as  the  large, 
and  it  must  be  with  much  satisfaction  that  the  smaller  com- 
pany considers  this  view  of  the  subject. 

Another  benefit  derived  from  standard  methods  is  that  the 
classification  is  not  changed,  nor  even  interrupted,  by  the  loss 
of  old  and  the  employment  of  new  clerks  or  management,  and 


46  ELECTRIC  RAILWAY  ACCOUNTING. 

it  will  guard  much  against  inaccuracy  in  the  hands  of  inex- 
perienced employees,  only,  of  course,  it  contams  no  magic  that 
will  wholly  safeguard  human  shortcomings. 

Standardization  means  simplicity,  and  the  general  state- 
ment may  be  made  that  simplicity  is  the  one  prime  factor  next 
to  accuracy  most  needed  in  accounting.  So  that  saying  it  tends 
to  simplicity  is  one  of  the  strongest  arguments  in  its  favor. 

This  does  not  mean  that  a  standard  system  of  accounting 
in  all  its  branches,  as  relating  to  electric  railways,  has  been 
found.  There  are  many  reasons  why  the  hope  is  expressed 
that  a  standard  method  of  accounting  from  first  to  last  may 
never  be  adopted.  The  principal  reason  is  that  it  must  surely 
destroy  individuality  in  the  human  part  of  the  work.  And  if 
that  time  comes,  the  electric  railway  accounting  service  will 
suffer  much  as  the  steam  railway  accounting  service  has  in 
being  tied  to  the  ideas  and  wishes  of  others.  The  standard 
classification  is  enough,  and  while  suggested  methods  may  be 
freely  offered  along  the  detailed  work,  there  should  be  no 
attempt  to  standardize  them.  Further,  the  standard  classi- 
fication is  the  one  thing  that  has  placed  all  companies  on  a 
common  footing.  Its  adoption  and  use  have  done  much  toward 
accuracy  and  stability,  for  it  has  laid  down  safe  principles 
which  all  companies  of  all  sizes  may  follow  to  their  benefit; 
but  when  a  method  of  doing  the  detail  work  of  the  office  is 
attempted,  it  will  be  not  only  difficult  to  estabHsh,  but  unsat- 
isfactory in  results,  as  local  conditions  of  operation  and  custom 
will  always  operate  as  a  bar. 

It  is  well  to  point  out,  however,  that  the  use  of  similar 
titles  of  accounts  for  the  comparison  of  one  railroad  property 
with  another  is  an  unsatisfactory  process,  without  taking  into 
consideration  the  differences  in  geographical  and  physical  ar- 
rangement. It  should  also  be  borne  in  mind  that  the  mere 
charging  of  like  activities  into  similar  accounts  does  not  bring 
about  direct  comparisons  of  companies  in  different  localities, 
nor  of  companies  of  different  sizes. 


STANDARDIZATION   OF  ACCOUNTS.  47 

While  it  is  true  that  a  quick  and  general  idea  for  operating 
and  investing  purposes  can  be  gained  by  the  use  of  comparisons 
of  operating  accounts,  a  comprehensive  idea  of  the  scope  and 
work  of  the  different  administrations  cannot  be  gained  other 
than  by  the  use  of  vastly  more  information.  The  mere  knowl- 
edge that  one  company  earns  18  cents  per  car  mile  and  an- 
other 25  cents,  or  that  one  operates  for  9  cents  and  the  other 
for  18  cents,  does  not  at  all  show  that  the  first  is  more  eco- 
nomical than  the  second.  Nor  will  the  added  assurance  that 
the  first  company  earns  more  and  is  operated  more  cheaply 
per  car  hour  than  the  second,  be  a  positive  basis  to  compare 
managers.  The  contour  of  the  property,  the  cost  of  labor, 
the  cost  of  fuel,  the  kind  of  fuel,  and  many  other  matters,  enter 
into  a  positive  comparison  of  the  properties.  One  manager 
may  have  a  modernly  equipped  property,  and  the  other  may 
.be  heroically  holding  his  property,  together  by  the  force  of  his 
personality.  With  this  accepted  and  followed,  the  report  of 
a  company  can  be  pretty  accurately  analyzed  by  a  stranger 
if  he  can  be  placed  in  possession  of  the  facts  of  mileage,  physi- 
cal condition,  etc. 

Aside  from  the  confidence  felt  in  following  a  method  known 
to  be  standard,  and  also  from  the  advantage  of  comparison 
with  other  companies,  the  greatest  advantage  comes  to  a 
company  comparing  the  present  with  the  past.  The  assur- 
ance that  the  past  contained  the  same  items  as  the  present 
brings  swiftly  and  easily  home  to  the  present  manage- 
ment that  there  is  a  reason  to  be  found  somewhere  when 
the  comparison  is  not  favorable.  There  is  also  the  advan- 
tage that  an  investigation  need  not  be  started  of  the  method 
of  accounting,  as  that  is  standardized  and  was  the  same  in  all 
periods. 

It  is  very  true  that  there  is  a  reason  for  everything,  and  it 
is  also  very  true  when  the  operating  accounts  climb,  as  they 
have  a  habit  of  doing.  They  cannot  do  so  without  the  ap- 
proval of  some  one,  and  a  standard  classification  helps  to  point 


48  ELECTRIC  RAILWAY  ACCOUNTING. 

out  the  person  and  the  pohcy  that  permitted  the  increase. 
Anything  that  will  assist  in  fixing  causes  and  effects  is  valuable. 
This  standard  classification  is  so  lucid  and  comprehensive 
that  the  writer  does  not  hesitate  to  recommend  its  adoption 
by  all  street  railway  companies,  and  to  recommend  further 
that  it  should  be  implicitly  followed.  It  is  flexible  enough 
to  provide  for  local  conditions  without  interfering  with  the 
general  plan,  and,  when  adopted,  the  greatest  care  should  be 
used  in  charging  the  items  to  the  proper  accounts. 


CHAPTER  VIII. 
THE  BALANCE  SHEET. 

One  of  the  best  descriptions  of  a  general  ledger  is  contained 
in  the  exceptional  work  by  Marshall  M.  Kirkman,  entitled 
''The  Science  of  Railways."  In  this  work  the  author  com- 
pares the  ledger  to  a  graveyard,  into  which  is  gathered  every- 
thing left  over  from  previous  activities.  He  refers  to  the 
headings  of  the  accounts  as  the  tombstones,  and  it  seems  that 
the  comparison  is  particularly  apt,  for  into  these  accounts  are 
gathered  and  literally  buried  the  results  and  the  totals  of  the 
company's  life. 

The  balance  sheet  has  been  always  considered,  as  it  prop- 
erly is,  a  very  important  statement  of  the  company's  con- 
dition, but  the  tendency  seems  to  be  to  pay  rather  more  at- 
tention to  the  operating  results  of  the  company  than  to  its 
condition  as  displayed  by  the  balance  sheet. 

If  not  forming  a  part  of,  there  should  at  least  accompany, 
the  monthly  report  of  operation  to  the  president,  a  complete 
analysis  of  what  is  contained  in  most,  if  not  all,  of  the  ledger 
accounts. 

It  is  comparatively  easy,  under  ordinary  conditions,  to  gain 
business,  and  it  is  easier  to  extend  credit.  Where  the  difficulty 
arises  is  in  obtaining  actual  money  for  the  credits  to  income 
put  into  the  general  ledger,  offset  by  an  equal  amount  in 
some  accoimt  in  the  assets. 

In  an  intimate  examination  of  a  number  of  companies,  the 
writer  has  almost  invariably  found  assets  upon  the  books  that 
were  worthless,  or  nearly  so.  These  assets  of  record  were 
placed  in  the  books  in  good  faith,  but  by  the  process  of  time 
or  neglect,  or  both,  a  collection  had  not  been  pushed.     It  also 

49 


50  ELECTRIC  RAILWAY  ACCOUNTING. 

frequently  occurs  that  investments,  on  account  of  policy  or 
other  reasons,  are  included  in  the  assets  of  the  company  at 
their  face  value,  when  every  "one  connected  with  the  company 
is  cognizant  of  the  fact  that  they  are  worth  less  than  par. 

The  balance  sheet,  while  supposed  to  show  the  condition  of 
the  company,  can  be  made  a  most  misleading  statement. 
Numbers  of  companies  have  been  wrecked  upon  rocks  which 
were  not  clearly  shown  on  the  balance  sheet.  For  this  reason 
the  balance  sheet  should  be  arranged  in  such  a  way  that  the 
different  classes  of  assets  and  liabilities  can  be  grouped  together 
with  subtotals  enough  for  intelligent  comparisons. 

What  is  known  as  a  condensed  balance  sheet  should  never 
be  used  in  the  monthly  report  without  the  soundest  of  reasons. 
It  does  not  require  much  explanation  here  to  show  that  ac- 
counts may  be  combined  in  such  a  condensed  balance  sheet 
and  pass  muster,  when  the  attention  would  be  quickly  ar- 
rested and  questions  asked  about  accounts  standing  by  them- 
selves. The  custom  is  all  too  common  that  but  three  accoimts 
are  carefully  looked  for:  they  are  cash  on  hand,  bills  payable, 
and  surplus.  All  are  important,  of  course,  but  they  are  not 
conclusive. 

Cases  have  occurred  where  dividends  have  been  paid  upon 
the  strength  of  ohe  profit  and  loss  account  without  reference 
to  investments  and  other  charges  in  the  accounts  which  clearly 
reduced  the  value  of  the  profit  and  loss  account.  When  the 
distribution  of  charges  is  in  his  control,  it  takes  a  strong-prin- 
cipled manager  to  charge  to  operation  items  that  may  be 
stretched  to  be  considered  construction,  and  it  is  also  quite 
possible,  through  a  misunderstanding  of  facts  or  a  scarcity  of 
information  in  the  accoimting  office,  to  charge  items  to  con- 
struction without  his  knowledge. 

The  accounts  receivable  accoimt  is  frequently  another  place 
where  dead  and  alive  accounts  are  carried  along  indefinitely 
as  an  asset  of  the  company.  It  is  not  impossible  for  items 
to  be  carried  there  so  long  that  collection  cannot  be  made. 


THE  BALANCE   SHEET.  61 

Prepaid  accounts  go  into  the  books  as  assets,  and  their 
accumulation  is  so  subtle  and  so  gradual  that  they  require 
the  most  careful  watching  in  order  to  preserve  the  integrity 
of  the  profit  and  loss  account. 

Therefore,  the  analysis  of  the  ledger  accoimts,  which  should 
accompany  the  report  to  the  president,  should  contain  each 
month  a  detailed  explanation  of  each  asset  and  liability  ac- 
count of  the  company,  together  with  such  information  relating 
to  the  items  in  the  accounts  receivable,  the  accounts  payable,, 
the  prepaid  accounts,  the  bills  payable,  and  the  other  accounts 
relating  to  current  assets  and  liabilities,  that  the  official  who 
is  placed  by  the  stocknolders  and  directors  at  the  head  of 
the  organization,  shall  be  persistently  and  consistently  in  inti- 
mate touch  with  the  condition  of  the  accounts  as  they  appear 
in  the  ledger. 

That  the  books  balance  is  not  sufficient.  It  is  the  condition 
of  the  accounts  which  are  balanced  that  tells  in  the  end. 

The  balance  sheet,  as  contained  either  in  the  monthly  report 
or  accompanying  the  analysis,  should  be  as  much  in  a  com- 
parative form  as  the  income  and  operating  parts  of  the  monthly 
report.  It  should  be  so  constructed  that  the  accounts  as. 
found  at  the  end  of  the  previous  fiscal  year,  the  current  month 
of  the  report,  and  the  previous  month,  can  easily  be  compared. 
The  differences  between  the  current  month  and  the  end  of  the 
previous  fiscal  year,  and  the  differences  between  the  current 
month  and  the  previous  month,  should  be  carried  out  in  par- 
allel columns.  Then  there  should  be  a  statement  accompany- 
ing the  balance  sheet  analyzing  wherein  the  differences  be- 
tween the  two  months  and  the  fiscal  year  to  date  occur.  This 
should  be  so  clear  that  the  information  is  of  value. 

From  an  accounting  standpoint  it  is  easy  enough  to  charge 
anything  to  any  account.  Where  the  difficulty  occurs  is  in 
explaining  why  the  charge  vv^as  made,  and  the  official  in  charge 
of  the  general  books  of  the  company  should  so  fortify  himself 
that  when  the  time  of  explanation  comes  his  reason  will  be 
found  to  be  well  grounded. 


52  ELECTRIC  RAILWAY  ACCOUNTING. 

The  statements  and  comparisons  outlined  above  will  re- 
quire detailed  work  and  a  good  deal  of  it,  but  they  place  the 
actual  condition  Of  the  company  in  a  clear  manner  before 
those  responsible  for  its  welfare.  Careful  attention  should  be 
given  the  information  thus  obtained,  and  the  accounts  should 
be  kept  thoroughly  cleansed  at  all  times. 

The  segregation  of  the  accounts  in  a  balance  sheet  into 
divisions,  such  as  capital,  current,  and  passive  accounts,  both 
of  assets  and  liabilities,  and  then  to  match  the  divisions  of 
assets  with  the  like  divisions  of  liabilities  to  show  the  prepon- 
derance of  the  one  over  the  other,  does  not  give  a  clear  idea 
of  a  company's  status  imless  the  value  of  the  accounts  is 
considered. 

Such  a  comparison  does  show  whether  or  not  all  the  divisions 
of  book  assets  offset  the  liabilities,  and  is  desirable  to  that 
extent;  but  many  accoimts  may  be  of  value  upon  the  books 
for  future  accounting  purposes,  yet  possess  no  money  value. 
For  instance,  while  suspended  prepaid  accounts  represent  par 
of  money  expended,  they  will  not,  if  the  company  is  suddenly 
dissolved,  bring  par  as  an  asset.  Nevertheless,  they  are  im- 
portant for  their  purpose  and  must  be  shown  on  the  books. 
Another  instance  is  the  material  and  supplies  accoimts,  which 
are  rarely  equal  in  an  inventory  to  the  value  on  the  books, 
and  certainly  if  turned  into  money  will  not  bring  the  purchase 
price. 

So  that  in  making  such  a  statement,  great  care  must  be 
used  not  to  be  deluded  by  the  result  obtained. 

Full  cognizance  must  be  taken  of  the  fact  that  a  railway 
company  is  a  going  concern,  and  cannot,  except  under  the 
most  extraordinary  conditions,  cease  operating.  Once  started 
they  rarely  stop,  and  their  accounts  must  be  so  considered. 
Therefore,  to  use  such  a  statement  in  its  entirety  as  the  basis 
to  find  assets  with  which  to  continue  or  complete  construction 
or  other  imdertakings,  is  not  trustworthy.  Only  certain  of  the 
accounts  are  worth  cash,  and  only  after  careful  provision  for 


THE   BALANCE   SHEET.  53 

the  current  and  accrued  liabilities  should  they  be  considered 
as  assisting  toward  other  purposes. 

The  balance  sheet  of  a  railway  company  and  other  large 
corporations  is  particularly  susceptible  to  accounts  which  may 
be  called  "  blanket "  accounts.  By  blanket  is  meant  the 
gathering  of  many  small  accoimts  into  one  account  upon  the 
general  ledger.  What  is  known  as  accounts  payable  illus- 
trates what  is  meant.  In  a  subsidiary  ledger  are  kept  all  of 
the  accounts  owing  for  material  and  other  general  purchases, 
which,  because  they  are  so  numerous,  and  because  many  of 
them  once  opened  and  closed  are  never  or  rarely  opened 
again,  would  soon  fill  the  general  ledger.  And  also  because 
of  their  temporary  character  they  are  more  interesting  and 
useful  in  the  total  amount  owing  by  the  company  than  they 
are  in  the  several  details. 

Corporation  accounting,  it  may  be  explained,  due  to  the 
multitude  of  details  leading  up  to  the  general  ledger,  places 
the  details  of  most  of  the  accounts  appearing  upon  the  ledger 
into  books  made  for  the  purpose.  That  is,  the  accounts  pay- 
able, the  accounts  receivable,  the  earnings,  the  cash,  the 
items  in  suspense,  and  other  accounts  are  entered  into  books 
made  especially  for  the  needs  of  the  account,  and  then  only 
the  totals  each  month  are  posted  into  the  general  ledger.  In 
this  way  the  ledger  of  an  average  corporation  is  not  in  use 
daily  to  receive  details  as  it  is  in  commercial  accounting.  The 
subsidiary  books  intervene  to  absorb  the  details.  The  balance 
sheet  becomes  a  condensation  of  details  which  explains  why 
there  are  comparatively  so  few  accounts  in  a  balance  sheet  of 
a  street  railway.  It  is  not  that  the  details  are  not  there,  but 
that  they  are  absorbed  by  subsidiary  ledgers. 


CHAPTER  IX. 

ACCRUED  AND  SUSPENDED  ACCOUNTS. 

One  of  the  factors  in  a  balance  sheet  to  which  especial  atten- 
tion should  be  given  is  accrued  and  suspended  accounts. 
Otherwise  there  will  be  confusion  as  to  the  extent  to  which 
the  profit  and  loss  account  is  a  demonstration  of  the  earning 
ability  of  the  company.  In  examining  the  condition  of  a  com- 
pany as  shown  by  the  balance  sheet,  these  items  must  there- 
fore be  scrutinized  as  carefully  as  any  other  part  of  the  state- 
ment. They  should  not  be  dismissed  with  the  thought  that 
some  of  them  are  ^'book  accounts"  merely. 

The  real  difference  between  the  accounts  known  as  sus- 
pended accounts  and  those  classed  as  accrued,  is  that  the  first 
are  usually  intended  at  some  future  period  to  be  charged  into 
the  operating  expenses,  or,  at  least,  in  some  way  to  be  a  charge 
ordinarily  affecting  the  profit  and  loss  account,  while  the 
latter  have  gone  through  the  process  of  reducing  the  profit 
but  are  not  yet  paid. 

Another  way  to  explain  the  difference  would  be  that  those 
called  suspended  have  been  paid  or  offset  into  accounts  pay- 
able, and  for  various  reasons  have  not  been  charged  to  the 
account  to  which  they  will  later  go.  Sometimes  they  may  be 
called  prepaid  accounts.  The  accrued  accounts  are  those 
which,  for  the  sake  of  accurate  accounting,  are  charged  to  the 
operation  in  their  monthly  proportion,  even  though  they  are 
not  due  and  payable  until  some  coming  day. 

The  same  reason  usually  governs  both.  The  spirit  of  com- 
parison permeates  the  whole  of  corporate  life.  Everything  is 
judged  by  the  way  it  compares  with  a  previous  period,  and  so,  to 
make  the  comparisons  as  clear  and  distinct  as  possible,  it  be- 

54 


ACCRUED  AND   SUSPENDED   ACCOUNTS.  55 

comes  an  accounting  matter  so  to  keep  the  accounts  that 
some  kinds  of  inequalities  do  not  so  swell  the  charges  in  any 
given  period  as  to  destroy  the  comparison. 

Many  expenditures  in  the  operation  of  a  property  will  be 
abnormal  at  times  and  for  perfectly  proper  reasons  greater  than 
the  immediate  needs  justify.  For  this  reason,  the  items  com- 
posing the  extraordinary  expenditure,  instead  of  being  charged 
in  total  to  the  proper  operating  account,  are  suspended,  and 
then  at  succeeding  periods  the  proportion  due  from  those 
periods  is  charged  out,  eventually  wiping  out  the  suspended 
account.  This  is  well  illustrated  in  the  accounts  Prepaid  In- 
surance, Prepaid  Taxes,  Telephone  Rentals,  Damages,  etc.  It 
is  obviously  unfair  to  charge  the  total  cost  to  the  month  in 
which  these  payments  are  made.  Take  for  instance  Insurance, 
and  assume  that  all  the  policies  of  insurance  expire  in  the 
month  of  October,  and  that  the  annual  premiums  amount  to 
$6,000.  Insurance  ordinarily  cannot  be  bought  except  by 
the  prepayment  of  an  amount  for  the  whole  annual  cost. 
Therefore,  for  the  sake  of  comparisons  and  really  for  accurate 
accounting,  it  is  quite  unfair  to  charge  the  month  of  October 
the  whole  of  the  $6,000  for  insurance  when  its  own  proportion 
could  be  no  more  than  one-twelfth  of  the  whole  amount,  or 
$500.  Nor  is  it  possible  to  remembei  that  the  annual  pre- 
miums for  insurance  are  all  paid  in  the  month  of  October  in 
«ach  year,  for  the  reason  that  cancellations  are  always  being 
made  by  the  insurance  companies  and  soon  the  policies  are 
terminating  in  all  the  months  of  the  year,  even  though  they 
were  started  together. 

Telephone  rentals  in  many  cities  are  prepaid  in  quarterly 
installments,  and  when  this  is  done  they  too  should  be  handled 
in  this  way. 

The  account  Damages  may  be  either  suspended  or  accrued. 
The  nature  of  the  account  makes  it  difficult  to  handle  cor- 
rectly or  satisfactorily.  Damages  are  constantly  being  ac- 
cumulated as  a  liability,  and  yet  it  is  quite  impossible  to  fore- 


56  ELECTRIC  RAILWAY  ACCOUNTING. 

cast  accurately  what  the  cost  is  to  be  in  each  case.  Nor  can 
the  date  of  the  final  settlement  be  fixed  even  approximately. 
One  thing  only  is  certain,  and  that  is  that  the  date  of  settle- 
ment of  a  large  majority  of  the  cases  will  not  be  within  the 
month  in  which  the  cause  occurred. 

For  these  and  other  reasons,  the  company  finds  itself  com- 
pelled to  estimate  the  cost,  and  thus  to  charge  to  each  month 
an  amount  it  expects  will  be  sufficient  to  provide  for  the  ex- 
pense. There  are  many  ways  in  which  this  is  done,  one  of 
which  is  to  examine  the  previous  experience  for  some  years 
and  fix  upon  an  amount  that  it  is  hoped  will  suffice  for  the 
coming  year,  then  to  divide  that  amount  by  twelve  and  charge 
out  a  fixed  sum  in  each  month.  But  this  plan,  as  well  as  the 
others,  must  be  watched  to  see  that  the  guess  is  not  too  small, 
because,  in  that  case,  the  charges  in  the  later  months  must  be 
increased  to  absorb  the  excess.  This  plan  has  the  objection 
that  each  month  appears  alike,  when  experience  usually  proves 
that  some  months  are  more  expensive  than  others. 

Another  way  is  to  fix  upon  a  certain  percentage  of  the  gross 
earnings  and  charge  that  amount  out  each  month.  This  assumes 
that  the  months  of  the  largest  earnings  have  the  most  accidents. 

The  best  way  is  the  one  followed  by  a  few,  possibly  by  only 
one  company.  The  company  in  mind  has  gathered  most 
complete  statistics  of  its  experience  in  the  cost  of  cases  of  all 
kinds,  and  each  month  it  charges  out  an  amount  based  upon 
those  statistics  which  should  be  sufficient  to  pay  for  that 
month's  claims.  This  is,  no  doubt,  the  plan  nearest  right  that 
any  company  can  follow,  for  it  puts  into  the  books  at  the  time 
and  up  to  date  an  amount  for  all  its  claims,  while  the  usual 
way  is  not  to  accrue  the  claims  but  the  payments.  By 
the  usual  plan,  if  a  company  accrues  within  a  year  a  larger 
amount  than  it  is  required  to  pay,  it  usually  feels  that  it  has 
done  pretty  well,  when  perhaps  the  claims  which  must  even- 
tually be  paid,  will  amount  to  a  sum  that  would  cause  a  finan- 
cial strain. 


ACCRUED  AND  SUSPENDED   ACCOUNTS.  57 

There  are  many  other  such  assA  accounts  which  under  good 
accounting  should  be  treated  in  this  way.  And  the  same  may 
be  said  about  certain  accrued  accounts.  Interest  and  taxes 
furnish  similar  examples,  except  that  their  treatment  is  re- 
versed from  those  considered  above.  In  accrued  accounts  the 
payment  is  not  due,  and  may  not  be  due  for  several  months, 
therefore  it  is  as  unfair  to  the  month  in  which  the  payment  is 
made  to  charge  the  total  cost  to  it  as  in  the  case  of  the  prepaid 
accounts. 

There  is  one  great  difference,  however,  in  the  case  of  the 
prepaid  accounts.  The  payment  has  been  met,  and  there  will 
be  no  future  cash  embarrassment  on  their  account.  In  the 
case  of  the  accrued  accounts,  however,  the  charges  are  accu- 
mulated in  advance  of  the  date  of  payment,  and  unless  cash 
preparation  is  made  also  in  advance,  there  may  be  trouble  in 
meeting  the  obligation. 

A  company  may  keep  its  accounts  most  accurately,  accru- 
ing to  the  cent  all  the  payments  to  be  made,  yet  be  totally 
unprepared  when  the  day  of  settlement  comes  to  meet  its  just 
debts.  This  means  that  it  does  not  at  all  follow,  because  a 
company  is  fully  aware  what  it  must  do,  and  writes  the  fact 
in  a  book,  that  it  is  able  to  carry  out  its  obligations  and  meet 
them  promptly. 

As  explained  above,  there  are  some  things  which,  for  accu- 
racy, it  is  proper  t9  suspend  and  accrue,  but  the  ease  by  which 
it  is  done  has  brought  forth  another  class  of  suspended  ac- 
counts for  which  so  much  cannot  be  said. 

There  are  times,  more  or  less  frequent,  when,  after  gathering 
all  the  proper  items  together  for  a  month's  operations,  the 
total  charges  are  so  large  that  the  comparison  with  the 
previous  period,  or  the  percentage  of  earnings,  or  the  increase 
of  expenses,  looks  "bad."  Then  it  is  that  a  lump  sum  is  taken 
from  some  offending  account  and  suspended.  Usually  the 
suspense  is  written  out  in  subsequent  months  when  that  par- 
ticular account  does  not  show  up  in  an  extraordinary  light, 


58  ELECTRIC  RAILWAY  ACCOUNTING 

and,  so  far  as  the  public  sees,  all  is  well.  But  it  sometimes 
happens  that  the  subsequent  months  have  got  all  they  can 
stand  of  their  own  conditions,  and  the  suspended  accounts 
stay  suspended  to  the  actual  weakening  of  the  profit  and 
loss  account. 

In  the  accrued  accounts  it  is  necessary  that  great  care  be 
taken  to  see  that  proper  attention  has  been  given  to  the  de- 
tails composing  them.  Interest  is  a  matter  of  simple  calcula- 
tion only,  and  should  be  of  no  trouble,  but  taxes  present  an 
entirely  different  problem.  They  are  usually  of  several  kinds 
on  property  located  in  numerous  places,  and  are  paid  in  differ- 
ent ways  at  different  dates.  The  item  of  taxes  can  go  through 
more  combinations  and  make  more  trouble  for  the  accountant 
than  any  other  of  these  accounts,  and  he  should  by  every 
means  possible  be  constantly  on  the  lookout  for  inaccuracies. 

It  is  a  good  idea  to  have  a  subsidiary  ledger  called  a  suspense 
ledger,  into  which  should  be  posted  the  details  of  all  the  ac- 
counts suspended,  and  this  ledger  should  be  watched  most 
carefully. 

The  accountant  should  be  required  to  furnish  monthly  a 
carefully  prepared  statement  showing  the  condition  of  these 
accounts,  that  fxill  cognizance  may  be  had  by  all  concerned 
and  so  there  can  be  no  reason  for  embarrassment  at  a  future 
dav. 


CHAPTER  X. 
EXPERT  EXAMINATIONS. 

It  is  a  considerable  accomplishment  to  be  able  to  spend 
money  in  order  to  make  more  money.  The  withholding  of 
expenditures,  sometimes  called  economy,  is  often  the  most 
extreme  extravagance  so  far  as  the  final  result  is  concerned. 
There  are  ways  of  spending  which  save  in  the  end,  and  one  of 
them  is  treated  in  another  chapter.  And  there  is  a  way 
of  spending  which  adds  security  to  money  or  its  equiva- 
lent. It  is  this  method  which  is  made  the  subject  of  this 
chapter. 

The  expert  auditing  of  the  accounts  of  a  company  is  a  ne- 
cessary safeguard,  not,  be  it  understood,  always  to  protect 
against  dishonesty,  for  there  are  many  other  things  to  guard 
against  besides  that.  Misunderstanding  of  conditions,  errors 
in  judgment,  disregard  of  modern  methods,  inaccuracy,  ''get- 
ting in  a  rut,"  and  other  causes,  can  and  do  bring  about  dis- 
aster, probably  as  often  as  dishonest  practices  by  the  accoimt- 
ant  or  by  others. 

Expert  examination  of  accounts  has  its  simile  in  the  exam- 
ination which  the  physician  gives  the  candidate  for  insurance. 
Made  by  a  disinterested  person  it  becomes  a  careful  analysis 
of  the  conditions  as  they  are  found;  and  in  the  light  of  what 
they  should  be,  the  report  is  made. 

As  the  experience  and  reputation  of  the  physician  are  ele- 
ments to  be  considered,  so  also  the  same  qualifications  are  of 
importance  in  expert  accountants.  The  word  ''expert,"  as  here 
used,  comprehends  the  accountant  known  also  as  public, 
chartered,  certified,  and  other  terms  which,  while  not  strictly 
the  same  in  meaning,  are  usually  accepted  by  the  public  for 

59 


60  ELECTRIC  RAILWAY  ACCOUNTING. 

the  same,  so  that  not  to  draw  distinctions  too  finely  here  the 
word  ^'  expert  "  is  used. 

Generally  speaking,  the  examinations  should  be  made  annu- 
ally and  at  a  time  to  correspond  with  the  fiscal  year,  so  that 
when  the  term  of  an  annual  administration  expires  the  report 
of  the  audit  may  be  made  at  the  same  time,  thus  making  the 
report  to  the  stockholders  more  complete  and  perhaps  more 
satisfactory.  At  any  rate,  it  adds  to  the  feeling  of  security 
and  approval. 

There  is  this  to  say,  however,  that  an  expert  report  must 
not  be  considered  as  giving  a  clean  record  unless  the  wording 
of  the  report  is  such  that  it  warrants  it  to  be  so  taken.  A 
report  of  this  kind  usually  recites  the  instructions  given  to  the 
expert,  and  unless  they  are  sweeping  and  comprehensive  the 
result  will  ordinarily  be  an  examination  of  the  transactions 
leading  up  to  the  profit  and  loss  account,  which  clearly  is 
not  sufficient  for  a  complete  report.  Nor  is  it  sufficient  to 
report  that  the  annual  statement  of  the  company  and  the 
books  agree,  because  a  transcript  of  the  annual  balances  of 
the  ledger  accounts  may  be  made  with  all  accuracy,  yet  the 
condition  of  the  company,  its  actual  solvency,  may  be  every- 
thing but  what  it  should  be.  It  is  quite  possible  that  the 
books  can  be  correctly  kept  and  a  large  profit  shown  which 
is  reported  and  certified,  yet  the  profit  be  entirely  absorbed 
in  other  accounts  on  the  ledger. 

The  instructions  to  the  expert  should  comprehend  a  most 
searching  examination  into  the  condition  of  the  comipany. 
That  is,  what  it  is  actually  worth  and  how  it  came  to  be  so. 

The  value  of  the  assets  on  the  books  must  be  thoroughly 
analyzed  to  do  this,  and  at  the  same  time  to  decide  if  all  the 
assets  are  accoimted  for. 

The  known  liabilities  must  also  be  made  the  subject  of  a 
search,  and  should  be  analytically  considered  and  reported  at 
their  true  worth.  To  do  this  the  mortgage  and  franchise 
conditions  will  have  to  be  ascertained  and  compared  with  the 


EXPERT  EXAMINATIONS.  61 

books  and  practices  of  the  company.  This  is  often  a  fruitful 
field  for  search;  hardly  another  matter  can  be  so  important 
in  results  if  neglected. 

It  is  seldom  that  an  examination  takes  into  consideration 
the  often  dangerous  liability  of  unsettled  damage  claims,  yet  no 
company  is  free  from  them.  With  remarkably  few  exceptions, 
companies  do  not  allow  these  claims  to  go  upon  the  ledger 
even  at  a  reduced  or  estimated  value  until  paid.  Experience 
shows  that  the  amount  claimed  and  the  amount  paid  in  these 
cases  are  widely  apart,  but  paid  the  most  of  them  must  be,  at 
some  time  and  in  some  amount,  therefore  they  are  a  most 
distinct  liability,  and  to  that  extent  they  reduce  the  value  of 
the  property.  When  an  exarhination  does  not  make  men- 
tion of  these  items  and  make  allowance  therefor,  it  is  un- 
stable at  least  to  that  extent.  Instances  have  occurred  where 
a  company  has  been  loaded  up  with  liens  and  judgments  of 
various  kinds,  and  its  appealed  cases  in  court  have  also  been 
of  a  damaging  character  and  quantity,  yet  not  a  mark  ap- 
peared upon  its  books  showing  the  situation.  Conditions  of 
this  kind  are  often  important  and  must  be  reported. 

Finally  there  have  been,  and  no  doubt  are,  instances  where 
bonds  have  been  canceled  and  retired  without  the  mortgages 
securing  them  being  satisfied  upon  the  records  of  the  county 
in  which  they  were  recorded.  This  satisfaction  or  cancella- 
tion may  be  fulfilled  legally  and  no  trolible  may  be  caused  if 
the  mortgages  should  remain  in  the  public  records  as  outstand- 
ing, but  such  a  course  is  unnecessary  to  say  the  least. 

When  the  condition  of  the  company  has  been  thoroughly 
examined,  the  report  should  contain  a  summary  of  the  findings 
and  be  recapitulated  in  a  simple  straightforward  story,  so  that 
those  not  versed  in  the  language  or  the  technical  statements 
of  accountants  may  easily  and  thoroughly  understand  what 
has  been  the  result  of  the  search  —  for  search  it  literally  rep- 
resents. If  the  above  is  followed,  there  is  much  less  liabihty 
of  the  management  and  the  stockholders  gaining  a  wrong 
impression  of  the  position  which  their  company  occupies. 


62  ELECTRIC   RAILWAY  ACCOUNTING. 

Objection  may  be  made  to  such  a  plan  because  of  the  ex- 
pense attendant  upon  it,  but  it  need  cost  but  Uttle,  if  any, 
more  than  the  usual  audit.  However,  a  plan  which  will  make 
more  secure  the  values  of  a  company  will  find  its  echo  in 
market  values  and  confidence.  And  surely  such  an  expendi- 
ture, to  put  it  plainly,  cannot  by  any  means  cost  so  much  as  a 
reorganization,  and  it  is  much  more  agreeable  to  all  concerned. 

Such  examinations  have  become  a  part  of  the  new  order  of 
corporate  life;  and  while  the  financial  side  of  the  subject  only 
is  considered  here,  it  may  be  said  in  passing  that  it  is  of  equal 
importance  that  the  physical  and  legal  status  be  also  the 
object  of  examination.  As  much  can  be  said  for  that  kind  of 
a  report  as  for  the  financial,  and  the  need  of  these  reports  is 
being  more  recognized  at  the  present  time  than  heretofore. 
An  audit  requires  that  the  income  and  the  expenditures  be 
verified  in  detail.  To  do  this,  every  voucher  of  expenditure 
and  every  source  of  income  must  be  scrutinized  and  checked. 
In  addition,  all  entries  upon  the  books  must  be  followed  care- 
fully from  their  beginning  to  their  final  resting-place  upon  the 
ledger.  Even  then  the  work  is  not  completed  until  whatever 
changes  they  have  there  undergone  have  been  checked  and 
traced  to  another  point.  The  reasons  for  all  movements  of 
accounts  must  be  foimd  and  approved,  or,  in  the  case  they  are 
not  approved,  attention  should  be  called  in  the  report  to  what 
has  been  and  what  should  have  been  done. 

Owing  to  the  exceptional  detail  of  the  income  of  an  electric 
railway,  comprising  often  thousands  of  conductors'  reports,  it 
should  be  understood  that  an  audit  rarely,  if  ever,  includes  a 
complete  check  upon  that  part  of  the  income.  The  custom- 
ary way  is  to  check  a  day  here  and  a  day  there,  or  perhaps 
one  day  of  each  two  weeks  of  the  period  covered  by  the  audit. 
This  ordinarily  may  be  considered  sufficient.  With  it  as  a 
basis,  the  earnings  may  be  easily  traced  into  the  bank.  But 
it  frequently  happens  that  the  size  of  the  company  precludes 
keeping  the  conductors'  reports  any  length  of  time.     In  this 


EXPERT  EXAMINATIONS.  63 

case  the  audit  cannot  go  back  to  them,  and  must  start  with 
the  books  of  record  or  statements  upon  which  they  are  based. 
However,  it  is  not  an  easy  matter  to  ''salt"  the  earnings  of  an 
electric  railway,  because  its  value  rarely  stands  upon  the  rec- 
ord of  one  year,  but  upon  what  has  been  done  in  a  period 
covering  several  years;  so  if  the  money  shown  by  the  earnings 
really  reaches  the  bank  and  the  ledger,  it  is  fairly  good  evi- 
dence that  it  was  received  from  the  public. 

An  audit  should  see  that  the  entries  of  all  kinds  bear  the 
approval  of  some  one  in  authority,  and  the  responsibility  of 
the  approval  should  be  set  up  and  reported.  This  is  not  often 
done,  but  it  should  be. 

Particular  care  must  be  used  when  two  departments  are 
interdependent  in  the  same  transaction,  say,  for  instance,  the 
accounting  and  the  treasur)^  departments.  In  cases  of  this 
kind,  one  department  begins  a  transaction  and  the  other  fin- 
ishes it.  Conditions  such  as  this  give  openings  for  entries 
and  changes  in  amounts  and  carelessness  that  require  a  posi- 
tive check  and  verification. 

From  the  foregoing  it  will  be  seen  that  there  is  more  to  an 
expert  examination  than  the  mere  statement  that  the  books 
and  the  balance  sheet  and  income  account  as  shown  agree. 
Nor  is  it  enough  to  say  that  the  books  are  neatly  kept.  What 
is  needed  is  the  assurance  that  everything  on  the  books  be- 
longs where  it  has  been  placed,  and  that  everything  ascertain- 
able has  been  recorded.  And  further,  that  the  values  shown 
are  accurate. 

It  is  not  reasonable  to  expect  that  all  expert  accountants 
can  do  this.  An  expert  in  commercial  lines  is  not  always 
qualified  to  examine  and  pass  upon  the  accounts  of  an  electric 
railway.  The  two  classes  of  business  have  little  in  common, 
and  for  this  reason  it  is  best  to  know  beforehand  what  rail- 
way experience  the  expert  accountant  has.  When  satisfied 
on  this  point,  give  him  sweeping  instructions  and  then  require 
a  certificate  that  really  certifies. 


CHAPTER  XI. 

THE  ACCOUNTING  DEPARTMENT   NOT  A  REVENUE   PRODUCING 
DEPARTMENT. 

At  the  beginning  of  the  steam  railroad,  it  is  easy  to  believe, 
judging  by  the  experience  of  the  electric  railways  in  their  in- 
fancy, that  in  the  small  way  in  which  they  had  their  rise, 
various  duties,  which  are  now  carried  on  by  different  depart- 
ments, could  be,  and  were,  performed  by  one  person,  the 
general  manager  being,  no  doubt,  held  responsible  for  the  active 
and  detail  work  of  the  office  as  well  as  for  the  operation  of  the- 
road.  In  time,  the  freight  and  passenger  departments  were 
added,  or  rather  their  work  was  taken  from  the  active  duties 
of  the  manager,  and  the  accounting  department  also  received 
an  official  head  and  became  a  definite  department.  These  re- 
sults are  most  natural,  because  there  is  a  limit  to  the  amoimt 
of  detail  work  a  man  can  do,  and  as  the  size  of  the  roads  in- 
creased, it  followed  as  a  necessary  consequence  that  the  work 
should  be  specialized.  It  is  very  common  to-day  for  the  ex- 
ecutive officer  to  understand  the  detail  of  all  departments,  but 
he  certainly  cannot  have  the  time  or  the  strength  to  be  iu 
immediate  contact  with  all  the  details.  His  duties  are  large, 
and  he  deals  with  principles  and  results. 

As  the  steam  roads  grew,  the  natural  result  was  competition, 
which  meant  that  greater  efforts  had  to  be  put  forth  to  obtain 
what  was  considered  by  each  road  to  be  its  full  share,  or  more, 
of  the  business  tributary  to  it. 

In  the  course  of  events,  with  competition  becoming  stronger 
yearly,  there  came  the  time  of  reconstruction.  Many  of  the 
roads  were  not  provided  for  this  additional  strain.  Whether 
their   unprepared   condition   was    caused   by   lax   accounting 

64 


DEPARTMENT  NOT  REVENUE  PRODUCING.  Q5 

methods  or  by  high  operating  cost  would  make  a  very  interest- 
ing study.  Be  the  cause  what  it  may,  the  roads  had  to  meet 
the  problem,  in  part,  by  rigid  economy.  The  line  of  reasoning 
followed  at  that  time  gave  the  basis  that  whatever  department 
produced  revenue  should  not  be  restricted  in  its  efforts,  for 
upon  those  efforts  everything  was  supposed  to  depend.  How- 
ever, as  the  accounting  department  not  only  did  not  produce 
revenue,  but  seemed  to  be  expense  only,  it  at  that  time  and 
since  has  felt  the  first  effects  of  reducing  expenses.  It  is  curi- 
ous that  office  clerical  work  has  always  been  considered  almost 
as  a  luxury. 

It  was  a  long  time  before  the  period  of  economy  was  over, 
and  all  this  time  the  accounting  department  was  running 
short-handed,  or  with  a  force  of  cheaper  priced  (which  is  usu- 
ally another  term  for  poorer  quality)  clerks.  This  meant  little 
at  the  lime  except  that  it  was  so  much  money  saved.  What  it 
meant  later  is  another  story,  for  the  reduced  information  from 
the  accoimting  department  helped  toward  a  misconception  of 
actual  conditions,  so  that  the  results  caused  partially  by  a 
"cheap"  accounting  department  and  its  consequent  weak  sys- 
tem, are  foimd  everywhere  in  the  later  history  of  American 
railroading,  and  in  the  Federal  courts. 

The  above  is  a  preliminary  sketch  of  causes  and  effects  to 
show  how  an  idea,  once  taking  root,  may  spread  to  conditions 
not  originally  contemplated. 

Many  features  of  electric  transportation,  in  operation  and 
finance,  have  been  adopted  from  the  steam  railroad  practices 
passing  current  at  the  time.  This  applies  principally  to  the 
methods  of  organization,  the  financial  plans,  and  the  opera- 
tion of  interurban  properties.  This  is  natural,  as  steam  rail- 
roads had  had  nearly  sixty  years  of  experience  when  electricity 
commenced  to  revolutionize  urban  travel.  As  conditions  Were 
not  similar  in  all  details,  changes  have  been  made  to  conform 
to  the  new  environment. 

It  is  not  strange,  then,  that  at  the  same  time  some  of  the 


66  ELECTRIC  RAILWAY  ACCOUNTING. 

axioms  of  the  old  should  be  brought  over  to  the  new  system. 
But  it  is  to  be  regretted  that  the  trite  saying,  ^'The  accoimting 
department  is  not  a  revenue  producing  department/'  should 
have  been  adopted  with  the  old  meaning,  and  not  adapted  to 
the  new  conditions,  for  as  it  reads,  it  contains,  by  the  inter- 
pretation of  custom,  a  sort  of  criticism  which  should  not  exist. 
For  instance,  the  claim  that  ''bookkeeping"  is  necessary  but 
should  be  made  as  cheap  as  possible,  carries  a  meaning  to  the 
word  ''accounting"  quite  at  variance  to  its  true  meaning  as 
distinguishable  from  the  word  "bookkeeping."  The  state- 
ment, as  it  stands,  is  true.  It  is  not  a  revenue  producing 
department,  but  it  occupies  a  position  unique  in  its  impor- 
tance, because  the  whole  organization  other  than  the  account- 
ing department  may  be  considered  as  the  manufacture  and 
sales  departments,  and  they  cannot  know  the  producing  costs 
or  the  actual  profit  without  careful  accounting.  Estimations 
are  not  to  be  thought  of  as  finalities. 

It  follows,  then,  that  accounting  is  of  prime  importance,  and 
should  be  thorough  and  accurate,  so  that  the  results  of  carefully 
executed  plans  of  the  operating  departments,  for  the  increase 
of  revenue  and  decrease  of  cost,  may  be  given  promptly  and 
be  dependable. 

Statements  of  the  accounting  department  are  the  basis  for 
changes  in  operating  plans,  and  frequently  affect  market  values 
of  the  securities  of  the  company ;  presidents,  managers,  and  in- 
vestors are  placing  their  reputations  and  profits  in  the  balance 
with  operating  results.  .It  is  important,  therefore,  that  the 
department  which  brings  out  the  statements  should  be  as  care- 
fully organized  as  any  other  part  of  the  whole,  and  not  be 
in  the  hands  of  an  auditor  who  is  "small,"  "narrow,"  and 
"cheap,"  and  with  all  that  cheap  usually  means  —  with  clerks 
under  him  costing  less  and  worth  less.  It  is  economy  in  initial 
outlay,  but  it  is  not  warranted  in  the  results. 

It  is  proper  to  include  the  work  of  the  treasury  department 
as  a  part  of  the  subject  under  discussion,  because,  at  the  present 


DEPARTMENT  NOT  REVENUE  PRODUCING.  67 

time,  few  electric  companies  are  large  enough  to  separate  the 
two;  therefore,  the  matter  assumes  new  importance,  or  rather, 
its  importance  is  accentuated.  It  is  folly  not  to  surround  the 
handling  of  money  with  all  possible  system  and  safeguards. 
This  is  held  to  be  tnie  the  world  over;  yet  the  most  essential 
part  of  any  system  is  the  human  part,  and  too  great  care  can- 
not be  devoted  to  it. 

While  conceding  that  the  department  is  not  revenue  produc- 
ing, the  writer  wants  to  point  out  wherein  that  does  not  destroy 
its  importance,  and  to  show  its  functions  in  their  true  light. 
Experience  has  brought  out  certain  headings,  under  which  are 
gathered  the  different  items  comprising  income  and  disburse- 
ments of  the  company.  The  dollars  and  cents  shown  under 
these  heads  mean  to  the  management  that  certain  things  have 
been  done.  Shrewd  experience  transforms  these  figures  into 
the  things  done,  and  from  this  experience  plans  are  made  for 
the  immediate  present  and  the  future.  If,  in  the  accounting 
department,  inexperience,  being  cheaper,  is  substituted  for 
experience,  which  is  more  expensive,  the  result  to  the  operating 
and  financial  statement,  which  is  of  so  much  importance,  is  not 
difficult  to  imagine.  Indeed,  receiverships  have  resulted  from 
misstated  and  misunderstood  statements. 

In  view  of  the  analysis  that  is  possible  when  statements  are 
intelligently  prepared,  there  is  much  evidence  that  electric,  if 
not  steam,  railway  interests  are  recognizing  the  truth  of  the 
substitute  axiom,  ''The  accounting  department  is  a  revenue 
saving  department,"  which  is  more  fair  to  the  department  and 
not  easily  misunderstood.  , 

The  next  important  step  which  the  modern  organization  must 
take  sooner  or  later,  and  it  has  already  begun ,  is  to  so  separate 
the  accounting  department  from  the  rest  of  the  organization, 
by  having  its  head  report  direct  to  the  president,  that  it  will 
be  relieved  of  the  restraint  that  has  often  neutralized  its 
efficiency  when  controlled  by  a  ''record-making"  administra- 
tion. Accounting  is  so  vital  that  nothing  should  be  allowed 
to  divert  its  accuracy. 


68  ELECTRIC  RAILWAY  ACCOUNTING. 

One  thing  may  be  thoroughly  reUed  upon :  accurate  account- 
ing, as  the  work  of  an  experienced  railway  accountant,  will 
always  provide  the  opportunity  for  intelligent  operation  and 
for  financial  security,  so  far  as  it  depends  upon  the  story  of 
conditions. 


CHAPTER  XII. 
SOME  QUALIFICATIONS  OF  THE  RAILWAY  ACCOUNTANT. 

Nothing  can  be  thoroughly  explained  or  understood  without 
having  in  mind  the  force  that  controls  or  directs  it.  No  sys- 
tem of  accounting,  nor  the  scope  of  its  methods,  can  be  clearly 
appreciated  without  taking  into  consideration  the  personality 
of  the  head  of  the  accounting  department.  And,  it  must  be 
acknowledged,  no  system  of  any  kind,  be  it  ever  so  perfectly 
planned,  can  be  depended  upon  unless  it  has  a  properly  quali- 
fied directing  head. 

Very  much  has  been  written  about  system,  the  need  of  it^ 
and  what  it  can  accomplish;  but  very  little  has  been  said 
about  the  human  element  in  it.  Certainly  ''Messages  to  Gar- 
cia" have  appeared,  but  they  are  in  general  terms  and  do  not 
specialize.  The  intention  of  this  chapter  is  to  give  a  few  brief 
suggestions  upon  some  of  the  requirements  necessary  to  make 
an  accountant  all  he  should  be  as  the  head  of  a  very  important 
department  of  electric  railroad  practice. 

Beyond  the  fact  that  he  should  have  ability  and  understand 
his  particular  work,  and  be  accurate  in  his  work  —  require- 
ments which  it  is  assumed  he  fills,  else  he  would  not  be  so  sit- 
uated —  there  are  at  least  four  other  elements  necessary  to 
make  his  work  well  rounded.  They  are  honesty,  individuality, 
tact,  and  imagination.  Two  of  these  are  not  usually  consid- 
ered prerequisites,  but  this  chapter,  it  is  hoped,  will  show  their 
importance. 

The  first  of  these,  honesty,  is  always  considered,  but  always 
from  a  dollars  and  cents  point  of  view,  which  is,  of  course,  im- 
portant; but  that  does  not  comprise  all.  It  should  mean  fair- 
ness and  the  ability  and  the  desire  so  to  regulate  the  acts  of 

m 


70  ELECTRIC   RAILWAY  ACCOUNTING. 

his  department  that  it  will  be  fair  to  all  concerned.  Honesty 
also  includes  stability  and  that  steadiness  in  belief  and  action 
which  gives  the  impression  of  security.  Honesty  in  the  ac- 
countant not  only  means  that  the  company's  money  is  safe 
so  far  as  it  concerns  him,  but  that  his  work  will  bear  the  stamp 
of  sincerity.     Honesty  is  of  prime  importance. 

Individuality  means  standing  upright  on  one's  own  feet,  not 
blindly  following  the  ideas  and  w^ork  of  others.  No  machine 
was  ever  made,  nor  system  of  accounting  planned,  that  is, 
invented,  without  in  some  way  showing  the  personality  of  the 
maker.  This  is  so  true  that  it  is  frequently  possible  to  identify 
the  maker  by  the  workmanship. 

No  system  of  accounting  can  be  placed  in  a  man's  charge 
without  sooner  or  later  showing  marks  of  his  ovm  particular 
treatment.  It  must,  in  the  nature  of  things,  eventually  be- 
come an  expression  of  himself.  It  is  not  too  much  to  say  that 
if  he  is  positive  in  action,  his  work  will  probably  be  of  the 
same  character.  If  he  is  changeable  and  drifting,  his  work 
will  bear  the  earmarks  of  it.  A  strong  individuality  inspires 
confidence  in  the  strength,  resourcefulness,  and  ability  of  the 
possessor  to  do  without  precedent  if  necessary.  Individuality 
is  so  necessary  to  the  accounting  of  a  corporation  that  it  should 
be  fostered  when  found,  and  not  be  lost  amid  red  tape  or 
custom. 

Tact  is  patience,  waiting,  understanding  conditions,  and 
bringing  them  about.  Tact  is  so  important  that  native  or 
acquired  ability  will  be  largely  or  wholly  neutralized  without  it. 
Tact  in  handling  men,  in  explanation,  in  contact  with  the  pub- 
lic, in  hundreds  of  ways,  is  needed  in  the  make-up  of  a  man 
almost  as  much  as  a  just  cause.  Tact  will  succeed  often  when 
force  or  the  authority  to  force  will  fail.  There  is  no  gain- 
saying its  importance. 

The  last  of  the  four  requisite  qualifications  in  the  successful 
accountant  is  imagination.  At  first  glance,  imagination  may 
be  considered  as  outside  the  ''dry  work  of  business,"  but  a 


THE  RAILWAY  ACCOUNTANT.  71 

little  thought  will  show  that  it  is  not.  In  its  last  analysis, 
imagination  is  simply  the  momentary  translation  in  the  mind 
of  ideas  into  realities  to  judge  effects.  An  accountant  most 
certainly  needs  this  talent,  for  it  permits  him  to  plan  a  system, 
just  as  an  architect  plans  a  house,  with  it  complete  in  his  mind, 
while  he  is  arranging  the  details  to  bring  about  the  complete 
system.  Imagination  may  be  intuition  or  it  may  not.  Be 
that  as  it  may,  a  man  endowed  with  it  makes  fewer  failures 
than  one  who  is  so  practical  that  he  cannot  place  himself  in 
the  future  or  in  the  past  as  regards  figures  or  the  realities  for 
which  they  stand. 

Some  of  these  enumerated  requirements  are  such  that  when 
obtained  they  establish  the  standing  of  this  officer  in  the  com- 
munity. Especially  is  this  true  of  the  smaller  companies  where 
he  meets  the  public  constantly,  and  the  public  understands  the 
company  through  its  contact  with  the  representatives  of  the 
company.  Therefore,  his  standing,  his  reputation,  is  no  small 
matter. 

The  work  of  an  accountant  has  reached  a  plane  where  some- 
thing more  than  bookkeeping  is  required  of  him.  He  should, 
as  a  part  of  the  term  ''ability,''  understand  the  operation  of  a 
railroad,  not  as  an  ex-operating  man,  perhaps,  but  certainly  he 
should  have  a  grasp  of  the  theory  of  operation.  The  operating 
manager  and  he  should  work  so  together,  and  he  should  be 
acquainted  with  the  operating  conditions  in  such  a  real  way, 
that  he  will  understand  the  viewpoint  of  the  manager  as  well 
as  the  advantages  and  disadvantages  under  which  the  men 
work  from  whom  he  receives  information.  He  ought  also  to 
see  the  construction  of  the  property  and  to  understand  it,  or  at 
least  to  know  the  theory  upon  which  it  is  planned. 

The  legal  department  is  another  fruitful  field  for  him  to  un- 
derstand; of  course,  not  as  a  lawyer,  but  to  know  its  routine 
and  its  relation  to  the  rest  of  the  organization.  Nor  is  it  too 
much  for  him  to  know  the  theory  of  banking,  as  many  of  his 
duties  bring  him  into  close  touch  with  it. 


72  ELECTRIC   RAILWAY  ACCOUNTING. 

In  other  words,  the  successful  accountant  is  a  well-rounded 
man.  Remove  from  him  the  word  "bookkeeper"  (who  is  a 
recorder  only),  and  find  him  with  the  proper  qualifications,  he 
becomes  an  important  officer  of  the  company.  His  understand- 
ing of  causes,  through  his  experience  with  them,  will  make 
the  work  of  his  department  clearer  and  more  to  the  point. 

He  is  essentially  a  quizzical  officer;  he  it  is,  of  all  the  offi- 
cers, who  is  most  called  upon  to  continually  ask  "Why?"  and 
"What  for?"  the  replies  to  which  will  make  his  analysis  of 
accoimts  and  causes  and  effects  of  the  utmost  value  to  the 
operating  manager  or  the  president. 

The  position  and  work  of  an  accountant  are  peculiar.  His 
point  of  contact  with  every  department  is  the  same.  Nothing 
can  be  done  by  any  department  without  in  some  way  reaching 
the  accounting  department.  Everything  done,  each  addi- 
tional expense  and  every  saving,  affect  the  books  of  the  com- 
pany. The  whole  effort  of  the  organization  focuses  upon  this 
department,  and  from  it  comes  the  story  of  the  effort.  There- 
fore, the  officer  at  its  head  needs  all  the  training  and  level- 
headedness possible. 

He  is  a  "bookkeeper"  no  longer;  his  work  is  larger  and  very 
important.  This  is  being  more  and  more  recognized;  and 
where  this  is  so,  there  is  being  attracted  a  higher  class  of  men 
to  the  work,  which  cannot  but  result  in  a  clearer  understand- 
ing of  conditions,  with  the  resultant  benefits  to  all  concerned. 

A  very  eloquent  example  of  how  intelligent  accounting  may 
assist  toward  success  is  given  in  a  history  of  the  Carnegie  Steel 
Company.  It  shows  how  the  details  worked  out  by  the  ac- 
countant permitted  the  operating  manager  to  make  quick  and 
accurate  changes  in  both  manufacturing  and  selling  plans. 
This  illustrates  a  case  where  the  accountant  was  more  than 
bookkeeper  and  had  a  direct  influence  upon  the  success  of  the 
company. 

Very  many  successful  presidents  and  managers  of  to-day 
have  been  such  accountants  as  have  been  described.     They 


THE  RAILWAY  ACCOUNTANT.  75 

have  not  been  content  to  keep  accounts  only,  but  have  filled 
their  office  to  all  its  important  limits,  and  in  a  positive  way. 
Their  preferment  came  as  the  recognition  of  their  grasp  of 
causes  and  effects. 

A  future  is  open  in  this  department  to  men  who  will  see  the 
work  and  know  what  they  see;  who  will  understand  and  act 
upon  the  certainty  that  honesty,  individuality,  tact,  and  im- 
agination are  as  much  a  part  of  their  equipment  as  the  knowl- 
edge of  the  difference  between  a  debit  and  a  credit. 


CHAPTER  XIII. 
THE  ACCOUNTING  OFFICE. 

By  including  this  chapter  I  have  been  actuated  by  two  rea- 
sons. The  first  is  to  say  all  I  can  to  dispel  the  custom  of  be- 
lieving that  any  room  or  series  of  rooms  not  needed  for  other 
purposes  will  do  for  the  offices.  The  second  is  to  show  some 
fallacies  in  office  arrangement  and  to  consider  the  mental 
attitude  of  those  who  work  within  them. 

To  one  who  has  had  the  opportunity  of  visiting  many  street 
railway  offices  —  accounting  and  operating  —  there  comes  the 
thought,  "How  do  these  offices  appear  to  other  eyes  than  my 
own?"  And  how  do  they  appear  to  those  who  have  built  and 
arranged  them  as  they  are,  or,  in  other  words,  to  those  who 
are  responsible  for  the  present  conditions  under  which  the 
companies  meet  their  public  and  their  visitors  from  other 
localities  ? 

At  first  thought,  it  would  seem  that  all  railway  offices  would, 
of  necessity,  be  more  or  less  alike  —  that  the  nature  of  the 
business  would  make  them  so.  But  actually  this  is  far  from 
the  fact.  Individuality  plays  an  important  part,  and  it  is 
not  as  far  from  the  truth  as  it  would  seem  to  say  that  the  gen- 
eral condition  of  the  company  and  property  can,  in  a  measure, 
be  gauged  by  the  condition  of  its  general  offices. 

As  an  instance,  not  long  ago  the  writer  had  occasion  to  visit 
the  offices  of  an  important  railway  company.  After  entering 
a  large  and  splendid  building,  which  was  entirely  devoted  to 
the  company's  purposes,  he  could  not  find  any  sign  or  direc- 
tory of  the  location  of  the  different  departments,  nor  any  one 
to  give  such  information.  So  it  became  necessary  to  try  doors 
—  without  signs  upon  them  —  until  some  one  was  foimd  to 

74 


THE  ACCOUNTING  OFFICE.  75 

assist  in  the  location  of  the  officer  wanted.  Now,  this  com- 
pany is  in  a  prosperous  condition,  but  its  operation  is 
more  or  less  ''happy-go-lucky,''  and  so,  it  developed,  is  the 
office. 

It  seems  that  a  company  would  always  serve  its  own  interest 
by  thinking  how  the  public  is  going  to  find  its  way  around 
when  bent  on  doing  business  with  it  in  its  own  home. 

The  most  pronounced  discord  in  office  arrangement  is  the 
habit  of  piling  packages  and  books  under  desks,  on  the  top 
of  cupboards,  on  window  sills,  and  in  other  prominent  places. 
These  packages  are  usually  of  various  sizes  and  dusty,  and  they 
are  nearly  always  subject  to  doubt  as  to  what  is  in  them. 
I  call  this  a  habit,  because  there  is  rarely  much  excuse 
for  it. 

Every  office  has  a  place  for  filing  records,  sometimes  not 
large  enough,  it  is  true,  but  it  is  safe  to  say  that  there  is  always 
a  corner  or  other  vacant  spot  into  which  shelves  may  be  placed 
for  the  receipt  of  whatever  it  is  necessary  to  save,  but  which  is 
not  valuable  enough  to  file  in  the  vault.  Such  open  shelves 
are  easily  hung  with  roller  shades  or  soft  curtains  to  keep  out 
the  dust  —  the  expense  is  small  compared  with  the  benefit 
derived.  Papers  so  filed  should  be  carefully  labeled.  This  is 
of  as  much  importance  as  the  labeling  of  a  book  upon  its  back, 
frequently  more  so. 

This  brings  up  the  relative  merits  of  filing  papers  in  pack- 
ages wrapped  and  labeled,  or  in  compact  pasteboard  boxes 
labeled  on  the  ends.  It  is  a  subject  for  each  company  to  de- 
cide, as  the  element  of  expense  enters  into  the  question;  but 
special  boxes  have  advantages  in  the  matter  of  space  filling 
and  ease  of  handling  which  sometimes  offset  the  expense. 

One  is  also  led  to  wonder,  while  on  the  subject,  if  the  office 
manager  has  ever  gone  through  his  office  and  opened  every 
drawer  of  desks  and  tables  as  a  sort  of  inspection  tour?  There 
are  matters  always  covered  up,  and  the  result  of  such  an  in- 
spection will  be  a  surprise.     Some  time  ago  the  writer  made 


•76  ELECTRIC   RAILWAY  ACCOUNTING. 

an  examination  of  a  property  whose  office  was  in  such  condi- 
tion that  Httle  headway  could  be  made  until  the  office  force 
took  a  half-day  off  and  got  the  safe,  vault,  and  desks  in  some- 
thing like  order.  I  am  convinced  that  this  example  is  not  a 
wide  exception,  but  only  in  degree. 

The  first  excuse  for  confusion  is  lack  of  time  and  lack  of 
office  help,  but  it  is  a  rare  case  where  the  habit  of  proper  filing 
takes  more  time  and  more  help  than  the  lack  of  it.  The  habit 
of  confusion  is  a  bad  one,  and  usually,  if  not  always,  the  office 
manager  is  the  one  at  fault,  for  it  is  well  understood  that  his 
ideas  govern  the  methods  of  work.  The  habit  of  system  and 
precision  is  easily  formed,  and  in  the  end  it  saves  money  to 
the  extent  of  ease  in  locating  papers,  and  it  is  not  infrequent 
that  a  clean  and  well-regulated  office  is  an  asset  of  the  office 
manager.  An  instance  is  known  where  an  orderly  office  — 
all  else  being  equal  —  gained  an  invitation  to  join  another 
company  to  an  office  man  who,  with  the  impetus  secured  from 
the  new  connection,  coupled  with  his  orderly  habits,  has  since 
materially  widened  the  space  between  himself  and  the  man 
with  whom  he  was  compared. 

It  is  not  necessary  to  enlarge  upon  or  discuss  the  relative 
merits  of  cleared  flat-top  desks  and  filled  roll-tops,  for  each 
may  be  cleaned  or  may  be  filled.  Each  has  advantages  of  its 
own,  but  it  is  well  to  touch  upon  the  subject  that  in  plans  for 
new  offices  consideration  may  be  given  it. 

It  should  be  borne  in  mind  that  the  office  is  not  simply  a 
place  in  which  to  do  the  office  work  of  the  company;  it  is  also 
the  place  where  the  public  is  received,  and  it  is  an  important 
point  of  contact  where  courtesy  and  cleanliness  will  have 
much  to  do  in  solving  or  dissolving  difficulties. 

There  is  a  well-known  saying  that  a  man  entering  an  office 
in  clean  clothes,  clean  linen,  and  with  a  business-like  demeanor, 
will  always  receive  more  consideration  than  the  one  whose 
linen  is  soiled,  and  whose  face  is  unshaven.  Can  this  not  be 
applied  in  reverse  order?     I  think  it  can. 


THE   ACCOUNTING   OFFICE.  77 

Many  companies  at  the  present  time  prohibit  smoking  on 
the  part  of  the  office  employees,  for  the  reason  that  it  is  not 
only  offensive  in  a  closed  room,  but  it  is  expensive  in  the  point 
of  companies'  time,  which  is  consumed  in  keeping  the  to- 
bacco lighted  and  picking  it  up  and  laying  it  down.  But  the 
cuspidores  for  the  chewers  are  just  as  large  and  numerous  under 
feet  as  ever. 

From  boyhood  to  be  ''businesslike"  is  impressed  upon  the 
youngster  as  one  of  the  best  targets  at  which  to  shoot  his  new 
ideas;  but  later,  in  the  anxiety  to  get  results,  office  appear- 
ances are  liable  to  be  overlooked  as  part  of  the  definition  of 
businesslike. 

Maybe  it  is  not  fair  to  compare  the  order  of  one's  home 
with  one's  office,  but  it  is  worthy  of  some  thought,  and  at  any 
rate  the  office  is  the  home  of  the  company. 

It  may  be  said  that  these  things  do  not  have  any  effect  upon 
the  success  of  the  company;  but  if  proper  consideration  is 
given  to  the  mental  attitude  of  those  working  under  badly 
arranged  and  careless  conditions  as  compared  with  those 
orderly  and  accurate,  I  am  sure  the  essential  esprit-de-corps 
will  be  more  largely  developed  in  the  latter  and  the  results 
will  naturally  be  better.  After  all,  the  result  is  the  gist  of 
the  whole  effort. 

In  addition  to  the  arrangements  necessary  for  the  proper 
meeting  with  the  public,  provision  should  be  made  that  the 
employees  coming  to  the  office  may  be  received  in  an  atmos- 
phere of  fairness,  and  frankly.  It  should  be  assumed  that  by 
the  appearance  of  an  employee  at  the  accounting  office  he  has 
business  there,  and  he  should  be  received  by  a  clerk  who  un- 
derstands that  it  is  a  part  of  his  duty  to  be  courteous.  When 
the  clerk  cannot  satisfy  the  inquiries  brought  to  his  window, 
the  accounting  officer  should  be  so  easy  of  access  that  the  mat- 
ter can  be  satisfied  authoritatively  and  at  once.  The  de- 
meanor of  the  clerks  to  the  inquirer  is  important  for  the  reason 
that  no  good  can  ever  come  from  willful  aggravation,  and  some 


78  ELECTRIC  RAILWAY  ACCOUNTING. 

of  the  most  surprising  results  have  grown  from  small  and 
unintentional  beginnings. 

To  sum  this  whole  subject  into  a  paragraph,  the  office  should 
be  well  and  conveniently  arranged ;  it  should  be  clean ;  and  a 
feeling  should  prevail  that  accuracy  is  paramount  and  that 
courtesy  is  an  essential  element. 


CHAPTER  XIV. 
TAKING  THINGS  FOR  GRANTED. 

It  is  undoubtedly  true,  as  some  one  has  said,  that  genius  is 
only  another  name  for  taking  pains;  and  so  it  seems,  with  a 
contrary  result,  that  failure  is  often  spelled  "taking  things  for 
granted." 

From  the  standpoint  of  any  one  who  tries  to  be  accurate  in 
his  work  and  the  work  of  his  office,  and  also  to  the  one  who  is 
depending  upon  others  for  information  upon  which  part  of  his 
plans  are  to  be  based,  there  is  little  that  is  more  aggravating 
than  finding  errors  which  change  the  probable  result,  especially 
if  the  excuse  is  given,  ''I  took  the  figures  for  granted  as  being 
correct." 

Taking  things  for  granted  is  not  easy  to  pardon,  nor  is  the 
rush  of  business  a  good  excuse,  because  the  business  of  operat- 
ing street  railways  is  so  thoroughly  interdependent  in  all  its 
parts  that  a  looseness  in  one  is  sure  to  affect  the  others. 

Effects  have  their  causes;  and,  in  looking  for  what  could  cause 
the  carelessness  which  is  the  subject  of  this  chapter,  the  lines 
have  led  to  conclusions  rather  different  from  those  which  first 
impressions  would  give.  That  is,  the  first  thought  is  that  the 
element  of  "don't  care  "  is  so  predominant  in  the  make-up  of 
the  clerk  of  to-day  that  taking  things  for  granted  is  part  of  his 
nature.  Yet  there  are  others  who,  in  the  commendable  desire 
to  be  accurate  and  escape  the  dangers  of  mistakes  of  assump- 
tion, go  to  the  other  extreme,  popularly  called  "old  maidish- 
ness."  This  usually  means  that  the  person  so  afflicted  is  never 
satisfied  that  anything  is  right,  even  after  many  times  check- 
ing. This  condition,  while  usually  bringing  forth  accuracy, 
nearly  always  results  in  a  clogging  of  the  machinery  of  routine 


80  ELECTRIC   RAILWAY   ACCOUNTING. 

to  such  an  extent,  that  to  get  results  in  time  to  be  of  any  ser- 
vice, estimates  have  to  be  made,  the  evils  of  which  may  easily 
be  as  great  as  inaccuracy.  Therefore,  while  the  dangers  of 
the  extreme,  called  '' taking  it  for  granted,"  and  the  other 
extreme,  called  ''old  maidishness,"  seem  to  be  almost  equal, 
there  is  a  middle  ground  governed  by  common  sense  and  care- 
fulness which  will  guard  against  inaccuracy  and  estimation. 
Common  sense  is  satisfied  with  that  checking  which  is  once 
and  careful  rather  than  numerous  and  still  doubtful. 

However,  every  subject  must  have  its  tw^o  or  more  sides, 
and  the  side  of  this  subject  usually  talked  about  is  that  the 
clerk  is  to  blame  for  the  condition.  But  clerks  are  of  a  station 
in  life  that  does  not  wholly  and  on  purpose  get  on  the  wrong 
side  of  a  subject,  especially  where  future  welfare  is  concerned. 
As  exceptions  are  naturally  a  part  of  all  general  statements, 
they  are  not  considered  in  this  chapter,  the  desire  being  to 
reach  as  much  as  possible  of  the  subject.  Then,  of  this  other 
side,  let  me  present  the  following  as  a  part,  at  least,  of  the 
causes  of  which  we  know  the  effect  so  w^ell: 

A  custom  exists  in  almost  all  large  businesses,  which,  in  a 
measure,  spreads  its  effects  through  the  whole  service.  This  is 
sometimes  called  official  dignity  and  sometimes  red  tape.  Be 
that  as  it  may,  it  usually  results  in  the  condition  that  the  per- 
sonal contact  between  the  head  of  the  department  and  the 
subordinates  is  so  small  that  the  personality  of  either  does  not 
enter  very  far  into  the  arrangement.  In  other  words,  it  is 
usually  considered  somewhat  imdignified  for  the  head  of  a 
department  to  be  on  such  terms  with  his  employees  that  his 
personal  interest  may  become  a  factor  in  their  work.  It  is 
true  he  occupies  his  position  for  the  purpose  of  treating  with 
the  larger  matters  of  his  department,  and  in  some  measure  to 
be  a  part  of  the  president's  ''cabinet,"  but  he  is  personally 
responsible,  or  should  be,  for  not  only  the  work  of  his  depart- 
ment, but  also  its  quality,  be  it  good  or  bad. 

Individuality  is  such  an  important  factor  in  success,  personal 


TAKING    THINGS    FOR   GRANTED.  81 

or  corporate,  that  it  seems  as  though  everything  should  be  done 
to  bring  it  forward.  It  must  be  seen,  however,  that  the  pres- 
■ent  system  of  work,  especially  office  work,  is  getting  very  close 
to  being  machinelike;  that  is,  according  to  a  pattern.  This  is 
very  easily  verified  by  reference  to  the  office  practices  of 
steam  railroads,  when  we  compare  present  methods  with  those 
of  ten  years  ago.  To-day  a  clerk  needs  little  more  than  a  knowl- 
edge of  the  station  list  to  step  from  one  company  to  a  like 
position  with  another. 

The  papers  of  the  day  are  full  of  anxious  articles  signed  by 
men  of  large  affairs  who  express  their  need  for  young  men  of 
capacity,  yet  it  requires  an  encouraged  will  power  for  a  young 
man  to  break  through  a  pattern-made  clerkship. 

This  condition  has  everything  to  do  with  'Haking  things  for 
granted,"  because  the  head  of  a  department,  by  leaning  upon 
his  chief  clerk  and  going  little  farther  in  personal  contact,  is 
taking  it  for  granted  that  his  clerks  are  all  alike  and  made  after 
a  pattern.  And  here  comes  the  explanation  of  the  paucity  of 
good  material.  The  average  boy  goes  through  school  a  part 
of  a  large  class.  From  school  he  goes  into  a  large  office  again 
as  one  of  many,  and  with  little  opportunity  to  learn  the  busi- 
ness far  from  his  own  desk.  He  comes,  in  time,  to  be  an  ac- 
cording-to-rule  clerk,  and  there  he  stops.  This  is  the  reason 
so  many  successful  men  are  known  to  have  climbed  from  small 
and  obscure  offices,  because,  as  a  part  of  a  small  office,  they 
learn  the  principles  of  the  whole  business  instead  of  that  of  one 
or  two  desks  only.  Surely  the  material  is  in  the  larger  office 
as  well  as  in  the  smaller,  but  through  lack  of  personality  and 
inspiration  from  the  head  it  is  very  hard  work  indeed  for  a 
new  clerk  to  be  trained  to  grasp  the  importance  of  even  his 
humble  desk.  He  quickly  learns  to  'Hake  things  for  granted," 
because  it  is  the  easiest  thing  to  do;  and  whatever  serious 
views  he  may  have  had  at  the  beginning,  he  cannot  stay  in- 
spired very  long  when  depending  upon  himself.  It  seems  to 
him  a  very  long  way  to  climb  from  his  desk  to  that  of  the 


82  ELECTRIC   RAILWAY   ACCOUNTING. 

chief  clerk,  and  the  head  of  the  department  is  so  far  away  — 
and  so,  usually,  is  his  dignity  —  that  he  almost  seems  to  be  of 
another  and  more  fortunate  race  of  men.  Then  there  comes 
the  stage  of  thought,  which  is  also  much  abused  in  newspaper 
articles,  viz.,  watching  the  clock.  Of  this  there  is  much,  no 
doubt,  yet  it  is  prompted  by  a  feeling,  it  may  be  of  retaliation, 
that  springs  from  the  dry  side  of  life.  Right  here  let  it  be 
understood  that  I  am  not  defending  the  careless  clerk,  but 
trying  to  get  at  the  causes  from  which  the  pernicious  effects 
arise. 

To  a  clerk  raised  in  such  a  condition,  the  importance  of  the 
little  things,  which  make  the  continuity  of  records  and  affairs, 
seems  rather  unimportant;  hence,  ''taking  it  for  granted''  is 
easy,  with  the  natural  result  that  the  larger  things  are  not 
seen  in  their  right  perspective. 

With  this  line  of  reasoning,  it  seems  most  important  that 
more  attention  should  \)e  given  to  the  proper  training  of  clerks, 
not  merely  to  show  them  the  evils  of  watching  the  clock  nor 
to  explain  how  very  important  it  is  not  to  take  anything  for 
granted,  but  to  go  farther  and  spread  one's  own  interest  and 
enthusiasm  into  the  work  by  getting  into  such  personal  con- 
tact that  the  work  will  be  done  well,  as  much  for  the  work's 
sake  as  it  is  for  the  amoimt  of  salary  agreed  upon.  This  con- 
tact need  never  reach  given  names  and  the  like,  but  it  may 
easily  be  made  a  relation  pleasing  and  helpful  to  each  party  to 
the  arrangement. 

Nearly  every  successful  man  of  to-day  will  say  that  his  climb 
upward  was  helped  by  some  one  higher  up  giving  him  advice 
and  explanations.  But,  if  it  could  be  definitely  learned,  it 
would  be  surprising  to  know  how  large  a  proportion  of  this 
assistance  came  through  friendship  from  men  of  other  com- 
panies rather  than  those  in  the  one  with  which  he  was  con- 
nected. How  very  much  better  it  will  be  if  this  advice  can 
come  from  nearer  home. 

Where  it  once  becomes  a  custom  to  take  figures  for  granted. 


TAKING   THINGS  FOR   GRANTED.  83 

there  is  sure  to  grow  up  a  mental  attitude  which  is  a  positive 
detriment  to  the  service.  Any  one  who  has  the  habit  is  a 
weak  spot  in  the  fabric  of  business,  and  this  weakness  will 
some  time  show  itself  in  a  manner  that  may  affect  the  reputa- 
tion of  the  head  of  some  department  or  the  welfare  of  the 
company  itself. 

This  is  not  an  idle  statement,  but  a  serious  fact.  Defalca- 
tions can  be  covered  up  if  the  clerk  whose  duty  it  is  to  check 
the  work  takes  this  or  that  figure  for  granted.  This  indicates 
how  simple  a  matter  it  takes  to  affect  the  standing  of  the 
whole  company,  as  well  as  the  reputations  of  those  leading  up 
to  the  trouble. 

It  is  absolutely  true  that  any  clerk  who  is  conscientious  and 
desires  to  have  his  work  accurate  is  not  liable  to  fall  into  this 
error,  but  that  there  are  others  who  are  not  of  the  same  frame 
of  mind  is  also  true.  I  am  convinced,  by  personal  observation 
and  experience,  that  a  large  proportion  of  carelessness,  espe- 
cially in  office  work,  springs  from  a  lack  of  personal  training 
by  some  one  higher  up.  A  new  clerk  is  nearly  always  turned 
over  to  another  clerk  to  ''break  in,''  and  if  he  does  not  make 
any  bad  mistakes  those  higher  up  take  it  for  granted  that  he  is 
filling  his  place  and  doing  his  work.  Now  and  then  there 
appears  a  story  by  a  school  teacher  showing  the  peculiar  under- 
standing pupils  have  of  sentences  taught  them  orally.  And 
there  is  also  a  game  played  by  grown-up  children  where  a 
remark  is  passed  from  one  person  to  another  in  an  evening 
gathering,  the  result  never  being  the  same  as  the  original. 
This  is  the  way  a  newly  made  clerk  is  liable  to  get  his  informa- 
tion, and  while  correct  in  some  points,  parts  of  the  original  im- 
pressions stick  to  him.  Therefore,  a  new  clerk,  broken  in  by  a 
careless  one,  may  absorb  the  teaching  of  watching  the  clock, 
taking  things  for  granted,  and  the  other  methods  not  good  for 
the  company's  service  or  his  future,  yet  his  intentions  may 
be  all  that  are  good.  So,  without  the  personal  contact  of  those 
above  him,  he  starts  out  with  the  methods  which  call  down 


84'  ELECTRIC  RAILWAY  ACCOUNTING. 

upon  him  the  phrases  of  the  man  who  is  looking  for  competent 
assistance. 

It  is  only  fair  to  acknowledge  beforehand  that  the  head  of 
any  department  is  a  busy  man,  and  thoroughly  occupied  with 
the  load  he  is  carrying  and  the  needs  of  his  position;  but  after 
all  is  said,  he  is  dependent  upon  his  clerks  for  the  routine  which 
leads  up  to  his  larger  duties.  Thus,  to  put  his  interests  on  a 
materialistic  basis,  he  can  well  afford  to  see  that  his  clerks  are 
properly  trained  and  in  harmony  with  all  that  is  best  for  the 
company,  himself,  and  their  future.  They  will  respond  by  a 
very  large  percentage  to  the  new  understanding  they  will 
have  of  the  work,  and  the  result  will  be  as  gratefully  received 
by  them  as  it  is  by  him. 


UNIVERSITY   OF   CALIFORNIA 
LIBRARY 

This  is  the  date  on  whiph  this 
book  was  charged  out. 


[30m-6,'ll] 


YC  9136 


165054 

'3s 


